Various types of payments you make in your small business must be reported on 1099 forms at the end of the year to the recipients of the payments and to the IRS. For example, payments you make to independent contractors are reported on Form 1099-MISC. In order to correctly report those payments, you need the correct name, social security or taxpayer identification number, and address of the recipient. This information is reported on Form W-9, Request for Taxpayer Identification Number and Certification.
If during the year you pay $600 or more to a subcontractor or other person or company that provides services to your business but is not an employee, you are required to file Form 1099-MISC at the end of the year. The requirement to file this form also includes various types of other payments to non-employees, rents and royalty payments, awards, and several others.
In addition to Form 1099-MISC, there are various other forms for tax reporting purposes. For details on the reporting requirements, you can see A Guide to Information Returns on the IRS website. There are links to each specific form that indicate the types of payments that have to be reported. The minimum amounts that have to be reported and the due dates for sending the form to the payee and to the IRS are also indicated.
According to the IRS, if you do not have a taxpayer identification number for a payee, or if the IRS informs you that the taxpayer identification number for a payee is incorrect, you are required to withhold tax at a flat rate of 28% from payments to that payee.
You should send Form W-9 to each payee for whom you have to report the payments you make during the year and ask them to complete and sign it. The purpose of Form W-9 is to provide you with the information you need to file your tax information reports at the end of the year. Form W-9 also provides certification from the payee that the taxpayer identification number provided is correct and that the payee is not subject to, or is exempt from backup withholding.
Form W-9 is therefore an important document to keep in your files. You do not have to send Form W-9 to the IRS. According to the IRS, you can use a substitute Form W-9 if its content is substantially similar to the official IRS Form W-9. But if you use a substitute form, you cannot require the payee to agree to any provisions other than the certification required on Form W-9. You can also establish a system for payees to submit Form W-9 electronically or by fax.
Sources:
A Guide to Information Returns, IRS
Form 1099-MISC, Miscellaneous Income
Form W-9, Request for Taxpayer Identification Number and Certification
Instructions for the Requestor of Form W-9, IRS
Topic 307 – Backup Withholding, IRS