If you run a business that hires independent contractors, vendors, or freelancers you need to know how IRS Form W-9 fits into tax reporting.
It’s also important that vendors, independent contractors, and freelancers understand how Form W-9 factors into their tax reporting responsibilities.
What is a W9 Tax Form
Officially called the Request for Taxpayer Identification Number and Certification, businesses use the Form W-9 to collect taxpayer identification numbers (TIN) from the individuals or companies they pay as freelancers, independent contractors, or vendors. The completed Form W-9 provides information needed for Form 1099.
The purpose of Form W-9 is to help businesses report payments made to contractors, vendors, and freelancers, ensuring income is properly documented. It’s a key step in helping the IRS track taxable income.
The freelancer, independent contractor, or vendor is the taxpayer responsible for completing the form with information specific to personal identification, business details, and tax classification.
Failure to Complete Form W-9
Not completing the Form W-9 could lead to complications.
Without a Form W-9, the business might not report the taxpayer’s income correctly. This could lead to potential audits or penalties. The taxpayer might also face backup withholding, where the business withholds a percentage of payment for tax purposes.
Who is Required to Fill Out a W9 Form
If you’re an independent contractor, vendor, or freelancer who receives payment from a business, you handle completing the Form W-9 and returning it to the requesting organization. Completing a Form W-9 for contractors, individuals or businesses means you are responsible for paying your own payroll and income taxes.
Filling out a Form W-9 is straightforward. You can fill out a Form W-9 by yourself. If you have questions, you can consult with a tax professional.
Independent Contractors and Freelancers
Individuals who provide services to a company but are not considered employees must complete a Form W-9 form. This allows the company to report payments to the individuals for tax purposes. If you’re an independent contractor or freelancer, each client you work for will likely request you to complete a W9 form.
Business Entities
Corporations, partnerships, and LLCs receiving payment for services must fill out a Form W-9.
Business entities use the Form W-9 form to establish their tax identification and classification, which is necessary for tax reporting.
Individuals Receiving Reportable Income
If you receive income that requires tax reporting, you will likely be asked to fill out a Form W-9.
This could include situations such as earning income from rental property or as part of a legal settlement. It’s vital to provide accurate information to reduce any discrepancies during tax filing.
Business Owner Responsibilities
If you’re a business owner paying individuals or companies, you’ll need freelancers, independent contractors, or vendors you hire to complete a Form W-9 for your records. According to the IRS, you should keep this form in your files for four years.
This form is not used for employee wages. It is specifically for non-employee compensation and other types of income. Every employee who receives a paycheck must complete Form W-4.
How to Fill Out W9: Step-by-Step Instructions
How to fill out a W9 form for individuals or independent contractors is very similar. There are a few differences in the steps for how to fill out a Form W-9 for a business. Read on for the details.
Step 1: Download the W9 Form
Freelancers, independent contractors, vendors and others who may need it can download the one-page Form W-9 from the IRS website.
You can choose to fill it out electronically or print and complete it by hand. Since changing tax laws and regulations can affect the form’s requirements, it’s important to make sure you have the latest version.
Where to Find Form W-9
You can find the most recent Form W-9 on the official IRS website on the About Form W-9, Request for Taxpayer Identification Number and Certification page. Download the current version under the current revision section. You can also find instructions for the form requestor on this page.
Print vs Electronic Completion of Form W-9
You will need to decide if you want to fill out the form electronically or by hand. Completing it digitally is more convenient because you can type your information and save a copy for your records.
Printing it and filling it out manually means you will need to provide the paper copy to the business requesting it and make a copy for your records.
Step 2: Your Personal or Business Information
The top section of the Form W-9 requires your basic information.
Box 1: Name. Enter your full legal name as it appears on your tax return. If you’re filling out the form for a business, use the business name.
Box 2: Business Name. If applicable, enter your business name or “doing business as” (DBA) name.
Box 3a: Federal Tax Classification. Check the box that describes your tax classification. If you’re an individual or sole proprietor, check that box. If you’re a C corporation, S corporation, partnership or trust/estate, there is a specific box for that. If you’re an LLC, check that box then enter the proper classification from the options noted.
Box 4: Exemptions. Leave this section blank unless you have a specific exemption from foreign account tax (FATCA) reporting. If you are unsure if this applies to you, it is best to consult your tax advisor.
Importance of Accurate Information
Discrepancies in your personal information can lead to misreporting to the IRS.
This can potentially cause audits or issues with your tax filings. It’s best to double-check each field before moving to the next section.
Step 3: Your Address
Enter your current mailing address in boxes 5 and 6. If the IRS or the business you are working for needs to reach you, they will use this address for communication and notices.
If your address changes after you submit the Form W-9, contact the business to let them know to update their records. This helps maintain financial documentation.
Step 4: Taxpayer Identification Number (TIN)
This is a crucial section of the form. Your TIN is the key identifier for your tax-related activities. It links all your income reports, tax returns and financial records. Providing the correct TIN helps make sure all your financial activities are tracked and reported accurately.
Use your:
- Social Security Number (SSN) if you’re an individual or sole proprietor.
- Employer Identification Number (EIN) if you’re a business entity.
Before submitting your Form W-9, double-check you entered the right number. Mistakes could lead to reporting errors, delayed processing and possible penalties.
SSN vs EIN
Individuals and sole proprietors typically use their SSN, while businesses use an EIN. If you’re not sure which to use, consider how you report your income on tax returns. Using the proper number prevents mismatches and potential issues with the IRS.
Step 5: Certification
The certification section includes statements you must confirm as true, including you are:
- A U.S. citizen
- Providing the right the TIN
- Not subject to backup withholding.
Your signature is your agreement to the form’s certifications. If you do not sign it, the Form W-9 is not valid. Sign and date the form before sending it to the payer to complete the process.
Backup Withholding
Backup withholding means the payer must withhold a percentage of your payment for tax purposes. You may be subject to backup withholding if:
- You do not provide a correct TIN.
- The IRS informs the payer you subject to backup withholding.
Keep a Copy for Your Records
Always keep a copy of completed Form W-9s for your records. This financial documentation helps you keep track of who has your TIN and gives you a reference for any questions or issues.
Common Mistakes to Avoid
The accuracy of a Form W-9 can help prevent IRS issues. Wrong information could lead to audits, penalties, and payment disruptions. It is best to double-check all entries before submitting the form.
Common mistakes include:
- Incorrect TIN. Verify the accuracy of your SSN or EIN.
- Wrong Tax Classification. Make sure you select the right tax classification. If you are not sure of the classification for your situation, consult a tax professional.
- Missing Signature. Remember to sign and date the form. An unsigned form is not valid.
Difference Between Form W-9 and Other Tax Forms
The Form W-9 is a request for your TIN and tax classification. It is not a tax return, a summary of money paid, tax withholding, or a payment form.
Form W-9 vs Form W-2
Form W-9 is used by businesses to collect information from independent contractors or freelancers who will earn $600 or more from the company.
Form W-2 is used to report an employee’s taxable compensation and tax withholding.
Form W-9 vs Form 1099-NEC
Businesses use Form W-9 to generate Form 1099-NEC for independent contractors, freelancers, and vendors who they paid more than $600.
Form W-9 provides the TIN and tax classification. The Form 1099-NEC reports the payments made to the independent contractor, freelancer, or vendor.
Form W-9 vs Form W-4
Independent contractors, freelancers, and others who work for a business provide their TIN and tax classification to businesses on Form W-9.
Employees complete Form W-4 to help employers calculate how much federal tax to withhold from an employee’s paycheck.
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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up to date.
