Brokerage: Issuing a W-9 to Co-Brokers

A W-9 form is an official IRS document used in the U.S. to provide taxpayer identification information. It is typically used in business-to-business transactions, especially when one party (such as a broker) is paying another for services rendered, including commission payments in real estate deals.

Why Is a W-9 Important for Brokers?

1. Tax Reporting Purposes: A listing broker pays a commission to the cooperating broker (or buyer’s broker) after closing a deal. This payment is considered taxable income, so the listing broker needs to report it to the IRS. By obtaining a W-9 from the cooperating broker, the listing broker gathers the necessary taxpayer identification information (usually the cooperating broker’s EIN or SSN) for filing a 1099-MISC form.
2. Issuing a 1099-MISC: At the end of the year, the listing broker is required to issue a 1099-MISC to the cooperating broker for any payments over $600. This form shows the total amount paid, which the cooperating broker must report as income on their tax return. The W-9 ensures the listing broker has the correct legal name and tax identification number (TIN) for accurate reporting.
3. IRS Compliance: Failure to provide or request a W-9 can lead to penalties for the listing broker, as they could be seen as not properly reporting income. The W-9 also protects the listing broker in case of an audit, as it shows they took the necessary steps to report income and issue a 1099-MISC.
4. Backup Withholding: If a cooperating broker refuses or fails to provide a W-9, the listing broker is required by the IRS to withhold 24% of the commission as “backup withholding.” This withheld amount is then sent to the IRS. To avoid this, providing a W-9 ensures the cooperating broker receives the full commission without deductions.

Summary of the W-9 Process in Real Estate:

1. Cooperating Broker Provides W-9: The cooperating broker fills out and sends the W-9 to the listing broker, providing their legal name, business name (if applicable), and taxpayer identification number (TIN).
2. Listing Broker Keeps the W-9: The listing broker retains the W-9 for their records but does not submit it to the IRS. It’s used solely for the listing broker’s reference to issue a 1099-MISC at the end of the year.
3. Issuance of 1099-MISC: After the year ends, the listing broker sends a 1099-MISC to the cooperating broker showing the total commissions paid during the year. A copy is also sent to the IRS.

The W-9 is a key step in ensuring transparency and compliance between both brokers in a real estate transaction.