When working jointly, firms and independent contractors often utilize the tax forms W-9 and 1099.
Knowing when to use each of these forms is crucial for accurately filing your taxes at the end of the year, giving the right information to employers and financial institutions, and more.
In this post, we go through the differences between a W-9 and a 1099 as well as when each should be used.
A W-9 is what?
The Request for Taxpayer Identification Number and Certification, or W-9, is a form that is used by the Internal Revenue Service (IRS). Employers give out this form to workers, independent contractors, and self-employed people. This form’s objective is to get accurate tax information from the employee so that the employer may report income payments in the proper manner.
You will be required to complete the W-9 by providing information like your:
- Number for Social Security
- categorization of federal taxes
You will sign the bottom of the W-9 before returning it to the employer. The employer does not have to submit the W-9 to the IRS, but they must maintain a copy of it on file in case the IRS audits them. The W-9 is merely intended to ensure that the employer has accurate information about the workers they are employing when it comes time to submit other forms during tax season.
Employers must provide a W-9 form for contractors and independent contractors to complete once they begin working. In this approach, the freelancer or contractor will be prepared should they make more than $600 (the amount at which a 1099 form must be filed at the end of the year). On the IRS website, you may get the most current W-9 form.
The following are some crucial variations between the W-9 and 1099 forms:
|Purpose||Accurate information for tax and payment paperwork to the employer.||Information about the contractor’s profits for IRS tax purposes.|
|Responsible||Done by the contractor at the request of the employer or financing institution.||Employers and contractors may complete and submit this form.|
|File Details||Not sent to tax authorities.||Must be submitted by January 31 to the IRS.|
|Frequency||Resubmission is only necessary if the information changes.||Each tax year when contractors are hired, this form must be submitted with the IRS.|
Do I need a W-9?
The W-9 form should only be completed in response to a request from your employer or financial institution so that they have the right data to process your pay and tax records. This form must only be used for institutional documentation; it cannot be sent to the IRS. If any other organization or person requests a W-9 from you, approach with care and thoroughly research who they are and what they intend to do with your information.
The most frequent scenarios where a W-9 form may be required are as follows:
- For financial organizations that you invest in or create new accounts with.
- Recruiting for employers.
- For parties that are canceling or settling a debt that is owing to them.
The IRS uses a 1099 document or set of records to keep track of various forms of income received from employers that are not wages. It is the payer’s duty to provide a finished 1099 form to the payee each year at the conclusion. As an example, if a business employs a freelancer, it must complete one of the 1099 forms and return it to the employee by January 31.
The many 1099 document types include:
Anyone who has employed a contractor or freelancer and paid them more than $600 is required to sign this paper. Employers must fill out and deliver a 1099-MISC form for each independent contractor they hire who earns the necessary amount of money. Employers will provide a copy to the IRS and the independent contractor. Each organization to whom an independent contractor supplied services during that year should anticipate providing them with a copy of this form.
The banks where you have interest-bearing accounts are often where you get the 1099-INT. The IRS must be notified of any taxable interest you receive from investments.
The 1099-DIV discloses your dividends from stock investments, much as the 1099-INT does. The 1099-DIV is used to record income that corporations distribute directly to shareholders in the form of dividends. You will get Form 1099-DIV from the investing business.
The federal government counts any debt cancellations as income if you get a part of your debt forgiven. For instance, if your credit card company determines you don’t need to make payments on your balance, they will issue you a 1099-C form to show how much of your debt has been forgiven.
Government organizations must declare any revenue you have received from them using Form 1099-G. This can include receiving unemployment compensation or a tax refund. Anyone who received unemployment benefits throughout the year should file their taxes and obtain a 1099-G from the government.
If you take a distribution from your IRA, the money is subject to income tax. At the end of the year, each person will get a 1099-R form that details all of the withdrawals they made. The taxable amount is often shown on the form itself.
When payments are received via debit, credit, or store-valued cards, Form 1099-K is frequently utilized. This is typical for internet merchants that take credit card payments. If you made more than $20,000 in sales and if there were more than 200 distinct transactions, third-party processors will send you a 1099-K.
To record revenue from real estate transactions, utilize a 1099-S form. The sale of a property or rental revenue may be examples of this. It is the seller’s obligation to keep track of and provide the IRS any necessary information about the transaction.
Who has to fill out a 1099?
It’s possible that both companies and people may need to file a 1099. In order to get tax information from independent contractors, for instance, employers mail W-9 forms. However, they also complete a 1099 form at the end of the year to report all payments made to that contractor.
If an individual is self-employed or an independent contractor, they must complete a W-9. At the end of the year, they must also submit a 1099 form to the IRS for each business to whom they delivered goods or services. A 1099 may also be sent to an individual for additional income, such as interest on investments or online credit or debit card purchases.