A Tax Identity Solution for Automated Regulatory Compliance
Collect, validate, and remediate US customer tax documentation with TaxBit's Digital W9/W8 solution
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Collecting customers’ personal data is time-consuming and becomes more difficult as businesses scale and regulations continue to evolve. Making sure the data is correct and updated when needed makes the process even more complex and error-prone.
There are 3 main components of verifying a customer’s tax identity that businesses should be aware of:
Collection and certification of a customer’s personal information
Verification of US Tax Identification Numbers (TINs), if applicable
Ability to audit and remediate incorrect or out-of-date customer data
Building and growing a business today requires you to know a lot about your customers placing a premium on getting the right information the first time. The below article details how TaxBit Digital W9/W8 enables a streamlined data collection workflow for new and existing customers to collect, store, remediate issues, and verify US customer tax identification numbers (TINs) with the IRS. Note: This step is not required for Non-US entities or persons.
TaxBit’s Digital W9/W8 Solution
The TaxBit Digital W9/W8 solution enables enterprises to easily embed the accurate collection of Forms W-9 and W-8 within their existing onboarding experience. And for those customers who have already been onboarded or for whom you have already collected some information, the solution intelligently leverages their data to reduce duplicative data entry. The end result is the best possible user experience and streamlined operations to generate accurate Forms W-9 or W-8.
The solution automatically facilitates the determination of customers as US or Foreign, collects necessary static and personal information required for information reporting, automatically matches the TIN provided with the IRS TIN Matching Database, and helps to avoid backup withholding requirements (where applicable).
Designed with the customer experience in mind, TaxBit Digital W9/W8 reduces friction in the new customer onboarding process with simple, intuitive data flows that provide businesses with an updated, organized data repository verified by the IRS for all customers in one location.
The stored information can be leveraged for a more seamless information reporting experience for your business. TaxBit’s secure platform helps to centralize user data, transaction data, and other related data in connection with information reporting – delivering significant cost savings with fully automated tax compliance.
TaxBit Digital W9/W8 enables clients to quickly and easily monitor which customers have a verified TIN or those that have not yet been verified. For any non-verified customers, your business will be able to take immediate action to reconcile any incorrect or missing data.
IRS Regulatory Requirements
IRC Section 3406 mandates certified US Taxpayer Identification Numbers (TINs) for certain types of payments, including interest, dividends, and broker payments. The manner in which a certified TIN is collected is via the Form W-9.
While seemingly an easy task to collect a Form W-9, the tax documentation process and data maintenance can be an arduous and frustrating process for the enterprise and customer since it not only involves collection but also storage and verification to ensure accurate taxpayer information. The accuracy of the information collected is critical as it is used for purposes of 1099 reporting with the IRS thereafter.
Operationally, this can be a significant effort to collect, verify, and maintain customer identity data while also adapting to future regulatory changes. Learn more about the basics of Form W-9 collection, validation, and downstream information reporting here.
Backup Withholding
While it's a significant benefit to businesses to streamline tax documentation processes, it is particularly important when a certified TIN is a requirement to avoid unnecessary backup withholding.
If certified TINs are not collected prior to a business facilitating a taxable transaction (i.e. a sale or trade of an asset), a business will likely be required to apply backup withholding at 24% of gross proceeds paid. Businesses will also face potential backup withholding obligations if the certified TINs are verified and matched before the filing of Forms 1099 each year.
Anyone who has received a “B Notice” from the IRS understands the large amount of manual effort required to resolve Name and TIN mismatches filed on Forms 1099. As you can imagine, the resources and time required to set up and deploy a full backup withholding solution should not be taken lightly. To avoid backup withholding and penalties, businesses need a system in place to collect the required tax information, store it safely and securely, and verify all customer data with the IRS.
How TaxBit Can Help
TaxBit’s Digital W9/W8 solution is a great starting point for businesses looking to fully automate their tax compliance while reducing enterprise costs, avoiding fines, and prioritizing great user experiences.
