Form W-9 is a U.S. Internal Revenue Service (IRS) tax form that collects and verifies taxpayer information from non-employee individuals receiving income.
Form W-9, also known as the Request for Taxpayer Identification Number and Certification form, confirms an individual’s name, address, Social Security Number (SSN), or Employer Identification Numbers (EINs) for businesses.
Who needs to complete Form W-9?
Self-employed individuals, such as contractors and freelancers, performing work for another entity must fill out Form W-9. Typically, businesses or clients hiring contractors and reporting non-employee payments request a Form W-9 from each contractor.
Form W-9 requires the self-employed individual to provide personal information, including name, address, SSN, or TIN for businesses. By signing the form, the individual confirms that the information is correct and they are not subject to backup income withholding tax.
Certain entities are exempt from backup withholding. However, if the taxpayer fails to provide the correct information on Form W-9, the payer may withhold a percentage of the payment.
Providing false information on Form W-9 can also result in penalties, so ensure the information on Form W-9 is accurate to avoid issues with the IRS.
Consider working with a contractor compliance partner to help navigate contractor payments and changes in legal regulations to ensure tax compliance.
Is Form W-9 required for contractors?
Yes, Form W-9 is typically required for contractors working with U.S. companies or receiving payments from U.S. sources. Unlike Form W-2, which employers give to U.S. employees, businesses use Form W-9 to collect necessary information from contractors for tax reporting.
The purpose of Form W-9 is to provide accurate information to entities that make payments to taxpayers and need to report income. Form W-9 helps companies issue specific tax statements to non-employees earning certain types of payments. For example, the information from a W-9 form helps generate a 1099 tax form for income filing.
Businesses must obtain a completed W-9 from contractors before making any payments. This ensures compliance with IRS regulations and facilitates accurate reporting of contractor income. However, Form W-9 is not part of a tax return and is only an informational form used for reporting purposes.
Where do I get Form W-9?
Form W-9 is available on the IRS website. Individuals can download, print, or fill out the form electronically. Businesses often provide a Form W-9 to the contractors they engage for work or services.
Where do I mail Form W-9?
Form W-9 is only an informational form used for tax reporting purposes and does not require mailing back to the IRS.
The business requiring Form W-9 will either provide one or request one from the self-employed individual. Once the individual fills out a Form W-9, the entity requesting the form will retain it for their records and use the information to complete necessary reporting to the IRS. The individual should keep a copy for their own records as well.
When is Form W-9 due?
There is no required due date to fill out or collect Form W-9. However, businesses typically request a completed Form W-9 from any non-employees before paying them so they have all the required information before filing taxes.
Form W-9 vs. Form 1099
Form W-9 and Form 1099 work together for tax reporting purposes, as the completed information on a Form W-9 helps an entity create different types of Form 1099s when paying non-employee compensation.
A business paying a contractor more than $600 per year must fill out a Form 1099-NEC per contractor and submit it to the IRS and the paid individual. Form 1099-NEC reports the contractor’s earnings to the IRS and lets the contractor file their taxes. Form W-9 provides the business with the necessary non-employee information to complete the 1099-NEC.
Additionally, a business must file Form 1099-MISC if they paid over $600 to an individual or entity for miscellaneous expenses such as rent, prizes, awards, or attorney payments. The Form W-9 verifies the recipient’s identity and collects their TIN.
Learn more: Forms 1099-NEC vs. 1099-MISC: What’s the Difference?
Form W-9 vs. Form W-4
While Form W-9 and Form W-4 are both tax forms that help gather similar taxpayer information, they have different recipients and purposes.
A business requests Form W-9 from a non-employee they have paid, such as a contractor, for both parties to file taxes. Form W-9 does not include any tax withholding. When the business reports the contractor payments at the end of the year, they use the information from the Form W-9 to create and issue Form 1099-NEC.
Conversely, an employer provides a Form W-4 to their employees to supply their taxpayer information and income tax withholding.
The information from Form W-4 determines how much federal income tax the employer will withhold from the employee’s paycheck and report to the IRS. Form W-4 captures the employee's filing status, multiple job adjustments, amount of credits, other income amounts, and deductions.
Form W-9 vs. Form W-8 BEN
While Form W-9 provides information to entities making payments to non-employee taxpayers for reporting purposes, Form W-8BEN helps entities classify their international workers for tax reporting.
Form W-8BEN is a tax form that classifies a foreign worker’s status as a non-U.S. citizen and determines proper tax reporting, withholding rates, or tax exemptions for the entity providing them income. A U.S. employer must request a W-8BEN from any non-U.S. citizen employees or international contractors before paying them.
Foreign workers receiving U.S. income are subject to a 30% tax withholding rate; however, some income tax treaties protect individuals from being taxed by both the U.S. government and the government of their country of residence. Form W-8BEN ensures individuals do not face double taxation in multiple countries.
How to complete a W-9 Form as a contractor
Filling out a W-9 form accurately is crucial for contractors to ensure proper tax reporting. The steps below may be helpful in completing the form’s key fields.
- Name and business information. Enter your full legal name as it appears on your tax return on Line 1. If you operate under a business name different from your personal name, include it on Line 2. This ensures accurate matching with IRS records and proper income reporting. For sole proprietors without a separate business name, Line 2 can be left blank.
- Federal tax classification. Select the box that matches your business structure, such as Individual/sole proprietor, Single-member LLC, or C Corporation. This classification is crucial as it affects how your income is taxed. Most independent contractors choose either "Individual/sole proprietor" or "Single-member LLC."
- Taxpayer Identification Number (TIN). Provide either your SSN or EIN in Part I. Individual contractors typically use their SSNs, while businesses use EINs. This number is essential for income reporting and tax filing purposes. Sole proprietors can use either, but the IRS prefers SSNs for easier matching with tax returns.
- Address. Supply your current mailing address on Lines 5 and 6. This should be the address where you receive tax-related correspondence, including any 1099 forms. Ensure this information is up to date to avoid any issues with receiving important tax documents.
- Certification. Sign and date the form in Part II to certify that the information provided is correct. This signature also confirms that you're a U.S. person or resident alien for tax purposes. Providing false or incorrect information can lead to penalties, so double-check all entries before signing.
Ensure all information matches your tax records to avoid processing delays or backup withholding. It’s also worth knowing that providing false or incorrect information on a W-9 can lead to penalties.
If you're unsure about any field, read over the detailed instructions on the form or seek advice from a qualified tax professional.
Why contractors should keep copies of their W-9 Forms
While businesses are responsible for maintaining W-9 forms for their contractors, it's also important that contractors keep their own copies. Retaining a record of submitted W-9 forms serves several purposes:
- Tax preparation. Having a copy of your W-9 form can streamline your tax preparation process. It provides a quick reference for the information you've provided to clients, ensuring consistency in your tax filings.
- Income verification. Your W-9 copy can help verify the income you should be reporting, especially if there are discrepancies with the 1099 forms received from clients.
- Audit protection. In case of an IRS audit, having copies of your W-9 forms demonstrates your compliance with tax regulations and can support your reported income.
- Business records. For contractors operating as businesses, W-9 copies form part of your essential business documentation, helping maintain accurate financial records.
- Client information. Your W-9 copies provide a record of which clients you've worked with, which can be helpful for future reference or in case of any disputes.
Maintaining these records requires little effort but can prove invaluable in various scenarios. Store your W-9 copies securely, either digitally or in physical form, for at least three years after the last tax year they were relevant to your filings.
Form W-9 plays a crucial role in the tax reporting process for contractors working with U.S. companies. By accurately completing and promptly submitting this form, contractors ensure proper income reporting and compliance with IRS regulations. This simple yet critical document facilitates clear financial transactions between contractors and their clients and lays the groundwork for correct tax filings.
Freelancers and contractors are tangible businesses in their own right. These entities should approach their tax obligations proactively, starting with the W-9 form. Keeping accurate records, addressing the form's requirements, and staying informed about tax regulations can ensure a professional and compliant self-employed business.
Managing contractor relations professionally and compliantly
Cultivating long-lasting contractor relationships requires more than a meaningful working dynamic and completing all the necessary paperwork. While Form W-9 establishes the basis for tax compliance, successfully managing contractor relations includes broader considerations. Companies must develop seamless communication channels, clearly define project scopes and deliverables, and maintain professional boundaries while respecting contractor independence.
International organizations working with contractors across borders face additional considerations, like global compliance regulations, currency exchange, and country-specific tax requirements. Establishing clear protocols for these relationships helps mitigate risk and ensures smooth business operations.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.
