Last week, the Treasury Department released the “Green Book,” formally known as the General Explanations of the Administration’s Revenue Proposals. Among its proposals, the Green Book suggests the expansion of the requirement to collect Forms W-9 to additional payments.
Under current law, payors are required to backup withhold on certain payments to payees that fail to provide a taxpayer identifying number (“TIN”) in advance of the payment being made. Currently, the backup withholding rate is 24%. In general, payments are potentially subject to backup withholding if the payments are required to be reported on Forms 1099-K, 1099-MISC, or 1099-NEC. Thus, payments made to payees that are “exempt recipients,” such as corporations, banks, and insurance companies, are not subject to backup withholding. If a payor fails to collect the payee’s TIN in advance of making the payment, the payor is liable for any failure to withhold the required backup withholding tax.
A subset of payments subject to reporting—interest, dividends, patronage dividends, and gross proceeds required to be reported by brokers—are subject to a heightened TIN collection requirement. Payors of such payments must obtain a certified TIN on a Form W-9 or a substitute Form W-9, signed by the payee under penalties of perjury. Payors of other types of reportable payments may generally obtain a TIN in any manner—over the phone, on an application form, on an invoice, or in an email, for example.
The Administration’s proposal would provide authority to Treasury to expand the scope of payments beyond those currently subject to the Form W-9 requirement. Accordingly, payors would need to potentially revise their vendor on-boarding process to collect certified TINs in advance of making the first payment. The proposal would be effective for payments made after December 31, 2022, but it appears that it would not take effect until Treasury issued regulations under section 3406 to expand the current certified TIN requirement