ARLINGTON, Va.—Many credit unions have been receiving a letter from Progressive Insurance asking them to fill out and return the IRS W-9 form—but should they comply?
According to NAFCU Vice President of Regulatory Compliance Brandy Bruyere, the tax law is "quite technical and complex" and that Progressive's letter indicates a Jan. 1 requirement under the U.S. Foreign Account Tax Compliance Act (FATCA), which requires IRS withholdings for certain kinds of payments.
Bruyere noted that many credit unions may be familiar with the W8-BEN form and other FACTA-related requirements, but this requirement stated by Progressive may fall under a part of the law effective Jan. 1 that applies a 30% withholding tax to "gross proceeds from the sale or other disposition" of any property that produces certain covered income.
"According to its letter, Progressive is seeking new W-9s from those entities that are potential payees such as lienholders, in order to 'certify … that a payee is a U.S. entity and thus not subject to' a 30% backup withholding requirement for these kinds of payments. This seems to be how Progressive has decided to ensure it properly withholds 30% from covered gross proceeds where necessary," Bruyere explained.
She added that there does not seem to be a federal requirement for a credit union to be providing a new W-9 to every single entity from which it may – at some point – receive a future payment.