There is a lot of paperwork to fill out when you start a new job, from direct deposit forms and benefit enrollments to your W-4 form. However, income taxes work differently depending on whether you are a contractor or a self-employed individual.
You must still declare your earnings to the IRS, and the corporations that use your services must still report their earnings. This is when the W-9 Form comes into play.
W-9 Form definition
Form W-9 is technically known as the Request for Taxpayer Identification Number and Certification. Employers use this form to obtain the Taxpayer Identification Number (TIN) from contractors, freelancers, and suppliers. Other personally identifying information, such as your name and address, is also provided on the form.
The form is a contract that states you, as a freelancer or contractor, are responsible for withholding taxes from your earnings.
When you work full-time, your employer withholds a portion of your pay to meet federal income taxes and FICA taxes (Medicare and Social Security). Employers do not withhold such amounts from contractors.
At the end of the tax year, the company you worked with will use the information on your W-9 to generate a 1099-MISC. This form summarizes all payments made to you. A financial institution may also be required to report customers’ interest, dividends, and capital gains.
Before doing business with a firm or financial institution, they will usually offer you a blank W-9 Form to fill out. If you need to issue the form, you can visit the IRS website and download a W-9.
who is required to fill out a w9 form?
Any independent contractor who performs services worth more than $600 in a calendar year must complete a W9 form. Individuals who receive untaxed income, such as royalties, rent, prizes, and awards totaling more than $600 per year, must also file a W9.
The asking corporation keeps the W9s and uses them to prepare taxes; it does not submit them to the IRS. The following conditions necessitate the use of W9 forms:
- A company hires an independent contractor who earns over $600 in a tax year.
- A financial institution administers the investments of a taxpayer.
- A taxpayer is involved in a real estate transaction, such as purchasing or selling a home or other property.
- A lender will forgive some of your debt, such as credit card debt or mortgage interest obligations.
where can I find one?
If your customer, bank, or other financial institution requires you to fill out a W-9, they must issue one. If you believe you need to fill one out, it is most likely already on its way. It is also available in PDF format on the IRS website.
how does it appear?
The IRS W-9 Form is a one-page document. It also includes five pages of instructions. The section that you must complete looks like this:
instructions for the W-9 Form
Filling out a W-9 Form is relatively simple. The form, excluding the instructions, isn’t even a full page long. The company that hires you must enter its name and employer identification number (EIN). The form will then be filled out line by line.
list 1 – name
Enter your full name here. It should be the same as the name on your tax return.
list 2 – company name
Fill in your business name, trade name, DBA name, or disregarded entity name here. You can leave this line blank if you do not have a business.
list 3 – tax classification under federal law
This section outlines how you, the independent contractor, are classified for federal tax purposes. Check the first box if you are filing as an individual, single-member limited liability company (LLC), or sole proprietor who is an individual owner and is not considered for U.S. federal tax purposes.
A sole proprietorship is a business that runs under the owner’s Social Security number and is not registered as another business. Single-member LLCs are subject to the same taxes.
The remaining boxes represent C corporations, S corporations, partnerships, and trust/estate firms.
The Limited liability company box is for businesses with multiple partners or members. You can tick this box if you own an LLC that is treated as a partnership for federal tax purposes (write “P” in the next space), an LLC that has filed Form 8832 or 2553 and is taxed as a corporation (write “C” or “S” in the next space depending on the type), or a company owned by another LLC that is not disregarded for federal tax purposes (write the proper letter in the next space).
Your LLC is treated as a Partnership if you haven’t asked for it to be taxed as a C or S corporation. The “Note” on the form explains the rules that are unique to LLCs. You can always ask your lawyer or tax expert for help to make sure your form(s) are filled out correctly.
List 4. exemptions
You are not required to complete this part as an individual. Only specific firms or entities with a valid exemption must fill out these forms. Please enter a number or letter code indicating the cause if this pertains to you.
Enter your code in the first line if your entity is exempt from backup withholding. This should apply to the vast majority of entities. If your business is not exempt, the company that employed you will be required to deduct 24% income tax from your compensation and transmit it to the IRS. This is referred to as backup withholding.
Fill in the second line if you are exempt from reporting under the Foreign Account Tax Compliance Act (FACTA). The latter is only applicable if your accounts are outside the United States.
If you keep your account in the United States, leave the second line blank or write “N/A.” If you’re confused about your exemptions, see Page 3 of the form for a list of instances that would qualify you.
lines 5 and 6 address, city, state, and zip code.
Line 5 requires your employer’s address (number, street, and flat or suite number) where your information returns will be mailed. Line 6 leaves a space for you to input this address’s city, state, and ZIP code.
line 7: account number(s)
This line is optional; you can provide any account numbers your company requires. Most people can leave this field empty.
part 1 – individual taxpayer identification number (TIN)
In this section, you have two choices.
You can enter your Social Security number (SSN) or your employment identification number (EIN). If you file as a person or a single-member LLC, you must typically give your SSN.
If you file as a multi-member LLC classified as a corporation or partnership, you must use your EIN. If you are a sole proprietor, either number is acceptable, although your SSN is preferred.
If you are a resident alien and do not qualify for a Social Security number, use your IRS individual taxpayer identification number (ITIN).
To double-check your information, consult your tax expert or contact the IRS immediately. Incorrect TINs can cause problems with your payments or tax return. It could also result in future backup withholdings.
part II – accreditation
This is where you sign and date the form, showing that you filled it out correctly. Because this is a legal document, it is critical that you carefully read and follow all instructions.
When completing and sending a W-9, remember to keep your safety in mind. Check that the request for your form is valid before you fill it out. Also, make sure that the completed form is sent correctly.
Use a secure delivery mode, such as physical delivery, mail, or an encrypted file attachment. You want to avoid accidentally sending your personal information to the wrong person.
when should I send the W-9 Form?
If you’re asked for a completed Form W-9, they’ll need it to send you a Form 1099, which you’ll need to record certain types of income to the IRS. Payments requiring a Form 1099 include nonemployee remuneration (1099-NEC), miscellaneous income (1099-MISC), dividends (1099-DIV), and debt cancellation (1099-C).
Although there is no official deadline for submitting your W-9, you should do it as soon as you receive one. Completing Form W-9 as soon as possible ensures that you receive your tax forms as soon as feasible.
Remember, if you forget to send someone a W-9 or provide one with incorrect information, you could face a $50 perjury penalty. Before delivering your completed Form W-9, double-check that it has the correct TIN.
what if I’m gathering W-9s? suggestions for getting individuals to file
If your small business collects W-9s, deliver them before the 1099 deadline. Forms 1099-MISC and 1099-NEC have a January 31 deadline, and most other 1099s are due around the same time.
To be safe, some businesses will send out Form W-9 to every one of their contractors ahead of time, even if they don’t expect them to complete $600 of work for them.
Some accountants will even propose collecting a W-9 before providing any payments to encourage customers to file upfront.
what is the difference between a w-4 and a W-9?
When you start a new job as a full-time employee or your financial situation changes while remaining a full-time employee, you must complete a W-4 form.
Some of the same information is required on a W-4 form as on a W-9, such as your name, address, and Social Security number. These forms also inquire about tax exemptions.
Employers use the completed W-4 to determine how much federal income tax to withhold from your payment. W-9 Forms do not request this information since employers do not withhold income tax from contract and freelance employees.
what is the difference between a 1099 and a W-9?
The 1099 and W-9 Forms are inextricably linked. Independent contractors complete the W-9 Form to certify their tax obligations and submit information to their employer(s). Employers then use a contractor’s W-9 to complete a 1099 documenting the worker’s earnings.
There are 18 separate 1099 forms, each related to the type of income. This includes freelancing or contract income, real estate sales proceeds, debt forgiveness, pension contributions, and other benefits.
The amount you must declare varies depending on your income, ranging from $10 for interest earnings to $20,000 for specific credit card transactions.
When you start working as an independent contractor or freelancer for a company that uses your services, you will be given a W-9 Form. Then, in January, you’ll get your 1099-MISC form, which details your annual earnings.
Attach each of the 1099 documents you have received when you file your federal taxes. The company will also file your 1099-MISC with the IRS.
conclusion
If you’re a contract worker, freelancer, or self-employed, you’ll need a W-9 Form to file your taxes. Companies do not have to withhold taxes from your paychecks, and the W-9 is an agreement that you are responsible for paying those taxes on your own.
It is important to note that you do not transmit this form to the IRS. You send it to the employers who have asked for it. While filling out a W-9 is pretty simple, always double-check to ensure your information is complete and accurate. If you are confused about how to fill out a form, try hiring a tax accountant to assist you in making sense of your taxes.
