W-9 Automation using TaxBandits API
How TaxBandits API Automates W-9 Collection and Validation using your Vendor/Affiliate Portal or Accounting/CRM system.
Handling tax affairs for your vendors or freelancers doesn’t have to be a complex task. Automation can turn this intricate process into a simple, predictable, click-a-button kind of process, and the TaxBandits API-powered W-9 and 1099 automation plays a vital role in that transformation.
In the first part of this series, let us look at W-9 automation first and deal with 1099 automation in the second part.
Before diving into this solution’s specifics, let’s explore the idea and advantages of W-9 automation.
Problem with the current W-9 process
In the current system, businesses typically request a W-9 from their vendors or freelancers via email, often receiving a paper or PDF copy. This data is manually entered into the payroll or accounting system, serving as the basis for final 1099 reporting to the IRS.
Navigating this system becomes a logistical nightmare for the businesses when it comes to 1099 filings.
The critical point here is that information on the W-9 — Name, Type of Business, Tax ID (TIN — SSN/EIN), Backup withholding codes, and status — are typically taken at face value, with no definitive way to verify this data unless the IRS sends notices concerning incorrect or missing details.
Receiving these notices from the IRS can complicate matters exponentially, forcing businesses to reach out to vendors to rectify the situation, inform their accounts payable department to begin withholding taxes, and generally deal with a messy, time-consuming problem.
Additionally, the IRS’s new Information Reporting Acceptance System (IRIS) requires information such as business name/individual Name to match precisely with the EIN/SSN, a process known as TIN Matching.
For businesses with more than a handful of vendors or freelancers, navigating this system becomes a logistical nightmare when the time comes to file 1099s.
Businesses truly need an integrated system that can seamlessly connect with your existing software infrastructure, be it a Vendor Portal, a freelancer (GIG Workers) onboarding platform, Payroll, Accounting, CRM, or Affiliate programs (or any incentive programs).
Such a system should be capable of automatically collecting, validating, and processing data by directly channeling the information into your 1099 preparation and reporting system.
That’s precisely what the W-9 automation API from TaxBandits offers! Beyond that, the API provides additional benefits like electronic signatures, 1099 review capabilities, correction and void functionalities, and extensive state filing support.
Overview of W-9 Automation
W-9 automation simplifies the often complex and time-consuming tax documentation and processing tasks. This innovation brings many benefits that affect the tax documentation process, making it efficient and error-free. Here’s how it dramatically improves the four critical stages of this process:
- Reduction of Manual Intervention: W-9 automation brings efficiency and convenience to both sides of the transaction. For payers, it reduces the need to manage physical documents, eliminates repetitive data entry, and mitigates interruptions in the accounts payable process due to backup withholding requirements. This automation speeds up operations and decreases the likelihood of human error. Payees, on the other hand, are relieved from the hassle of submitting paper W-9 forms. Utilizing electronic signatures streamlines the once cumbersome process of signing, scanning, and uploading forms, providing a hassle-free experience.
- Streamlined Data Collection: Simplifying data collection is a crucial aspect of the W-9 automation workflow and integrates right into the tools, such as your Accounting or CRM software. It’s about initiating a W-9 request within the workflow, eliminating the hassle of double entry. It aligns with your vendor onboarding process to capture all tax-related information.
- Efficient Validation Process: W-9 automation simplifies validating the collected data. It includes verification of essential details such as addresses, business type, backup withholding requirements, and Taxpayer Identification Numbers (TINs), thus ensuring accuracy and aiding in compliance with tax regulations.
- Error Free 1099 Generation: The final process becomes manageable after the data collection and validation stages. W-9 automation ensures all steps are accurate and comprehensive, contributing to a smooth conclusion. The system incorporates business rules such as backup withholding exemptions, FATCA codes, and business types, which are crucial in generating 1099 forms. This eases the filing process and ensures tax compliance.
Easy W-9 Automation Using TaxBandits API
The TaxBandits API is a powerful solution that automates and streamlines the preparation and e-filing of Form W-9, 1099 forms, and various other tax returns with federal and state authorities. Designed with developers in mind, it supports the e-filing of a wide range of forms, including 1099-NEC, 1099-MISC, 1099-K, W-2, 941, 940, and 1095.
Detailed documentation accompanies the API, outlining clear instructions for every operation. To facilitate coding, SDK libraries in significant programming languages are available.
Furthermore, the TaxBandits API uses Webhooks to deliver real-time status updates on tax returns filed with the IRS/SSA, thus enhancing transparency and ensuring efficient communication.
W-9 automation powered by TaxBandits API can be used in a variety of use cases:
- Vendor/Contractor Portal: Most companies have a portal for their suppliers or contractors to gather the necessary data and communicate business transactions. TaxBandits API can be linked to the site during the “On-Boarding” procedure to give the vendors a secure link to fill in the W-9 information.
- Freelancers/Gig Workers/Affiliates: The same as above, but designed for freelancers or gig workers. Again, the TaxBandits API can assist in gathering the W-9 data during the “On-Boarding” procedure.
- Accounting or CRM software: These programs keep a list of your vendors or contractors and will primarily be used to send them 1099 forms at the end of the year.
In the first two use cases, the process of filling out a W-9 is initiated by the Payee (Vendor/Contractor/Freelancer/Gig Worker/Affiliate), and the payer is notified only after the W-9 is signed and completed. In the third use case, the payer initiates the request to the payee to complete the W9.
Let us discuss in detail both the Payee Initiated and Payer Initiated.
Payee Initiated — RequestByUrl Method
This method allows payees to initiate the process themselves. TaxBandits provides a unique URL to be embedded into a webpage (WebView). This URL, specific to each recipient, is generated based on a unique identifier, such as Vendor ID, contractor number, a random number, or even an email address when calling the W-9 API endpoint FormW9/RequestByURL.
The secure URL generated by TaxBandits API can be customized to include the logo, background color, and URLs to take the payee back in case of success or failure. The URL can be embedded using iFrame or as a standalone.
This approach enables payees to initiate the process when they are ready.
During onboarding, affiliates are presented with the URL generated in the previous step, which they must access to complete the W-9 form. This approach enables payees to initiate the process when they are ready.
The payees can complete and electronically sign the W-9 form at their convenience, and they also have the option to download the form for their records.
Upon submission, TaxBandits API performs TIN matching to verify that the EIN/SSN provided on the W-9 aligns with the IRS database, ensuring the accuracy of the data. The status is then communicated to the payer software using WebHooks.
Payer Initiated — RequestByEmail Method
This method allows payers to control the W-9 form completion process. Initiating the procedure involves using the API endpoint to send an email request to the recipients for W-9 form completion.
This method gives payers control over the start of the process.
Recipients receive an email containing a secure link to fill out form W9, prompting them to complete and electronically sign the W-9 form, with an option to download the form for their records post-signature. This method gives payers control over the start of the process and its progress, ensuring they can track its initiation and follow up as necessary.
Upon submission of the W-9 form, TaxBandits performs TIN matching to ensure the EIN/SSN provided aligns with the IRS database, confirming the accuracy of the information. The status is then communicated to the payer software using WebHooks.
How W-9 Automation Helps 1099 Filing
W-9 automation does more than just make data collection easy and validation precise. It’s especially beneficial when it comes to IRS reporting requirements.
If you pay $600 or more to vendors, freelancers, or gig workers, you must report these payments to the IRS, usually using forms like 1099-NEC or 1099-MISC or from this year using 1099-K. By ensuring that the information on the W-9 forms is correct, W-9 automation aids in making these 1099 filings error-free.
Additionally, it helps keep track of vendors subject to backup withholding, simplifying the 1099 filing process even further. So, with W-9 automation, the path from gathering data to filing 1099 forms becomes much smoother and more accurate.
Conclusion
Integrating TaxBandits API for W-9 automation is like having a superpower for your business. With this in your toolkit, you can bid farewell to the hassles of tax operations as all the challenging parts are managed effortlessly.
It also paves the way for simplified 1099 filing, taking a load off your shoulders during the tax season. What’s more, it leaves you with more time and resources to focus on what really matters — growing your business. Harness the power of W-9 automation with TaxBandits API and witness a significant transformation in your vendor management and tax processes.
Glossary:
Payers: These are entities, usually businesses, that pay other entities (such as contractors, freelancers, or other businesses) for services rendered or goods provided.
Payees: These are entities or individuals, such as contractors, freelancers, gig workers or other businesses, that receive payment from payers for services rendered or goods provided.
W-9: This is an IRS form, officially titled the “Request for Taxpayer Identification Number and Certification.” It is used by businesses to request the Taxpayer Identification Number (TIN) of a U.S. person (including a resident alien) and to request specific certifications and claims for exemption.
1099: This is a series of IRS documents known as information returns. There are several types of 1099 forms, and they are used to report various types of income other than wages, salaries, and tips.
TIN Matching: This is an IRS e-services tool that allows authorized payers who submit information returns to the IRS (including 1099 forms) to check the TIN furnished by the payee against the name/TIN combination files in IRS records.
