Learn what a W-9 is and why it’s necessary for both small and big firms working with contractors to gather them.
Learn how to use e-signatures to streamline the procedure.
Contents
The function of the W-9 form
One of the several tax forms needed by the IRS (Internal Revenue Service) to precisely estimate the taxes owing by contract employees in a particular tax year is the IRS Form W-9, often known as a W9. It’s a request for information on the contractors you pay, as well as an understanding that you won’t be deducting income tax from their wages; instead, the contractors will be responsible for paying their own taxes on this revenue.
A W-9 form has two sections. The payee’s identity information is in Part I. Part II is the certification, or signature, certifying that the ID details is valid. Although the term “W-9” is more often used, it is also known as a “request for taxpayer identity number and certification.”
W-9s may be e-signed and submitted back to you digitally, reducing time for contract employees and corporations alike.
When to ask for a W-9
For doing business with independent contractors and freelancers, Form W-9 is necessary. You must get a W-9 for tax reasons if your firm pays non-employees or small companies more than $600 apiece for work that has been performed.
The payment of Social Security and Medicare taxes by your business is not required, nor is the withholding of income taxes from payments made to independent contractors. As a result, the IRS needs to know to whom you are paying in order to be able to pursue collection. Use your W-9s to record how much you paid each contractor at the end of the year by keeping them safely kept.
Details needed on a W-9 form.
Check to make sure that your contractor has completed all necessary forms before you submit this information.
- Name of the payee or the name of their company. Unless it is an individual/sole proprietorship or single-member LLC (sometimes described as a “disregarded entity” by the IRS), the name used for the company must correspond to the name stated on the legal paperwork for LLC creation.
- The payee’s federal tax filing status or their intended filing strategy for this revenue. A single-member LLC, C corporation, S corporation, partnership, trust or estate, limited liability company (LLC), or other should all have the relevant boxes checked by the payee.
- The complete current postal address of the payee.
- Taxpayer identification number of the payee (TIN). This is often their SSN for US residents who are individuals or single proprietors (social security number). The employer identification number (EIN) connected to the company name will serve as the TIN for other organizations and enterprises. Additionally, a unique individual taxpayer identification number (ITIN) for resident aliens must be requested.
- Exempt payee code, one of the less often used fields, is used to inform the requester that the payee is exempt from tax withholding.
Correctness of W-9 forms.
Just as it’s critical to provide accurate W-9s when you or your business gets compensated for services, it’s crucial to gather accurate and complete forms from your contractors. Visit the IRS website for more precise information if you are unsure what is needed for your company.
What occurs to payees who fail to submit a valid W-9 form?
Consider a situation where a contractor sends you a W9 form but includes the wrong TIN or no TIN at all. If your business is the payee and you fail to submit a W-9, you risk being penalized. Failure to give accurate information on a W-9, such as the right taxpayer identification number, may also result in fines for perjury.
What happens to requesters whose payees fail to provide W-9 forms?
The IRS mandates that you begin withholding tax (28% of your payments to that contractor) if they refuse to disclose their TIN up until you obtain the full W-9. Failure to provide the IRS with backup withholding results in fines. By making freelance employees submit full W-9s, you may completely avoid withholding.
Other typical IRS tax forms
You may also need to record on other tax forms who you pay each year, how much you pay them, and how much of their salary you withhold.
Form 1099-MISC
At the end of the year, businesses are required to disclose the total amount of non-employee pay given to a contractor using Form 1099-MISC. Miscellaneous revenue from independent contractors or other self-employed employees is referred to as MISC. There are other 1099 form kinds that may be used to report income to the IRS, including revenue from interest on bank accounts held with financial institutions, debt forgiveness, profits from real estate deals, mortgage interest, and more.
Form W-4
For your regularly employed employees who are subject to social security and income tax withholding from your business, use this form in the same way you would a W-9. Have all new workers sign this form to confirm their individual tax position (tax exemptions, status, etc.), so you can determine the appropriate amount to deduct from their salary.
Form W-2
A W-2 is comparable to a 1099-MISC, with the exception of your W-4 workers. It is a component of the “information return” your business is required to submit to the government, much like the 1099. The amount paid to those workers that year and the amount deducted for their taxes, Medicare, and Social Security are shown on the W-2. It helps guarantee your workers get any income tax refund due to them and should be delivered to the employee as well as the Social Security Administration (which then transmits it to the IRS).
Get a free W-9 form
To make it simple for your contractors to fill out and return the W-9 form, email them a blank copy online. Free templates for Form W-9 and other crucial tax forms, including Form W-4 and the IRS I-9 Employment Eligibility Verification, may be downloaded from the Adobe Acrobat Sign Library.
More W-9 form inquiries? The solutions are here
If I work for myself, do I still need to submit a W-9?
W-9 forms are used by self-employed individuals such as consultants, independent contractors, and freelancers. If the company you worked for asks the form or if you earned more than $600 in a calendar year without being employed as an employee, you must fill it out and mail it.
What does a company W-9 entail?
A W-9 for a business entity gives details on the sums paid to that company throughout a calendar year (whether it be a limited partnership LLC or a single-member LLC). It has the same fundamental information as an individual’s W-9, but provides the company’s legal name, address, and Employee Identification Number (not TIN) instead of personal names and details.
What distinguishes W-9 and 1099 tax forms?
An independent contractor, freelancer, or consultant completes a Form W-9 and gives it to the employer so that they may preserve a copy for their records. The compensation that an employer gives to an independent contractor are specified on a Form 1099. Businesses provide contractors the 1099 so they may file it with the IRS and their state’s tax authority.
How should an LLC fill out a W-9 form?
Similar information is required on a W-9 for LLCs as it is for individual contractors, with two exceptions:
- If you are taxed as a disregarded entity (see the description above), select the “individual/sole proprietor” box rather than the “limited liability company” box in the tax classification section of the form. You should choose the LLC box and enter the letter P for partnership if your LLC has more than one owner since you are automatically taxed as a partnership.
- Enter your EIN rather than a personal TIN. This taxpayer identification number, which functions as a Social Security Number (SSN) for enterprises, is necessary if the enterprise employs people, is subject to taxation, or is organized as a corporation. The IRS offers free EINs that may be obtained by phone, mail, or online.
