W-9 Form: What Is It, and How Do You Fill It Out?

They will send one copy of 1099-MISC to the IRS and another copy to you in late January, following the end of the tax year. You’re generally not considered to be an independent contractor if your employer controls when, where, and how you do your job and when and how you’re paid and if the job provides any sort of employee benefits. The backup withholding rate is 24% for reportable payments. By registering for a NerdWallet account, you’ll have access to our tax product in partnership with Column Tax for a flat rate of $50, credit score tracking, personalized recommendations, timely alerts, and more. There are 18 different 1099 forms, each one relating to the nature of the income. This includes freelance or contract income, but also real estate sales earnings, debt cancellation, pension contributions and more.

For example, if you are a sole proprietor but rent office space, you will use the address that is used on your personal income tax return, i.e., Form 1044. An unscrupulous or financially struggling employer might try to classify an employee as an independent contractor to save money. If you’re classified as an independent contractor, your employer’s tax “savings” will come out of your pocket as self-employment tax. You’ll also become responsible for calculating and paying your estimated taxes four times a year and filling out Schedule C when you file your annual tax return. That means you’ll be responsible for the employer’s share of Social Security and Medicare taxes, and you won’t be eligible for unemployment compensation if you are laid off.

Avoiding backup withholding

Businesses have a heavy obligation from the IRS to obtain a completed Form W-9 from anyone they pay $600 or more to during the year. The requester of the taxpayer information is not exempt from penalties either. If the requester discloses or uses the taxpayer’s TINs in violation of federal law, the requester may be subject to civil or criminal penalties. The IRS has outlined several penalties for failure to furnish or comply with the reporting requirements of Form W-9.

• The Limited liability company box is for a Partnership or LLC businesses with multiple members.
• At the top of the form, provide your name and the name of your business if it’s different from your own name.
• Use your EIN if you file as a multi-member LLC classified as a corporation or partnership.
• Should you choose not to furnish a Form W-9 or if the information provided is incorrect, a 24% withholding tax will be taken from future payments you receive from your client.
• Or, if you’re self-employed, you may find that you need to complete Form W-9 for companies you’re contracting with.

In addition, the form may include a specific set of instructions provided by the IRS. The IRS requires those who are not defined as U.S. citizens or resident aliens to use the appropriate W-8 Form in place of a W-9 form. The information obtained on a W-9 form is most often used to create a version of Form https://www.bookstime.com/articles/bookkeeping-for-ebay-sellers 1099. A 1099 form contains information about any income that may have been received by the TIN holder that would not normally be listed on a W-2. There’s also no guarantee that the recipient will store the form securely even if you send it securely, so ask about their method of storage prior to sending.

Form W-9

You need to use it if you have earned over $600 in that year without being hired as an employee. If your employer sends you a W-9 instead of a W-4, the company has likely classified you as an independent contractor. You should confirm with the company that this is the case. However, a W-2 is only issued to employees of a company, not independent contractors or unrelated vendors.

You’re certifying to the IRS that the TIN you’re providing is correct. You are also certifying that you are a U.S. citizen or other U.S. person, that any codes you entered are correct, and that you are not subject to backup withholding. Backup withhold on any reportable payments made to the payee’s account, regardless of whether the payee makes any withdrawals, beginning no later than 7 business days after you receive the awaiting-TIN certificate. Backup withhold on any reportable payments if the payee makes a withdrawal from the account after the close of 7 business days after you receive the awaiting-TIN certificate.

Individuals vs. Businesses

That information is then used to remit appropriate tax forms to the taxpayer. One of those forms may be a Form 1099 which is issued to report earnings to an independent contractor or other individual that receives payments for various reasons. While a W-9 is used to receive information from a taxpayer, a 1099 is used to convey information the other way. If you receive a Form W-9 with a FATCA exemption code and you know or have reason to know the person is a specified U.S. person, you may not rely on the Form W-9 to treat the person as exempt from FATCA reporting.

The purpose of a W-9 is to gather tax information from a vendor. When a company pays a non-employee or other entity money more than $600 in a year for their service, the company must file an information return. To ensure the information returned is accurate, the purpose of a W-9 is to gather all required information directly from the vendor. IRS Form W-9 w9 tax form meaning should be completed by any independent contractor, freelance worker, and vendor that a business hires or works with. This allows the business to have the crucial information that they will need when it comes to file a Form 1099 on the contractor/vendor’s behalf. There are two main reasons why a person may be subject to mandatory backup tax withholding.

Tax Tips

However, in some cases, individuals who become U.S. resident aliens for federal tax purposes are not eligible to obtain an SSN. This includes certain resident aliens who must receive information returns but who cannot obtain an SSN. Again, keep your safety in mind when completing and sending a W-9. Before you even fill it out, verify that the request for your form is legitimate. Use a secure method of delivery, like hand delivery, mail or encrypted file attachment.

You will use either your personal Social Security Number (SSN) or your Employer Identification Number (EIN). While some sole proprietors do in fact have EINs, the IRS prefers such business owners use their SSN on the W9 since it is easier to match the corresponding 1099 that the sole proprietor will also file. Even if you operate a brand new business and haven’t yet obtained an EIN, you can still fill out a W9.

W-9 requirements and instructions

This includes but is not limited to income paid to a person as part of a contract, certain real estate transactions, dividends paid against an investment, and various other financial transactions. You should fill in any codes that apply to your being exempt from backup withholding or from Foreign Account Tax Compliance Act (FATCA) reporting. Sole proprietors are generally not exempt from backup withholding, but corporations are exempt from backup withholding for payments such as interest and dividends.

• This is an optional line where you can fill in any account numbers your employer may need.
• The good news here is that filling out a W-9 is a fairly short form.
• The IRS may send you a letter regarding backup withholding.
• W-9 forms are used in many different situations, often for independent contractors or freelancers.
• If the owner of a single member LLC is also a disregarded entity, provide the name of the first owner that isn’t a disregarded entity.
• In addition to being careful of how you send a Form W-9, be respectful and considerate on how you store Form W-9 for independent contractorss that work for you.

It is not filed with the IRS; it’s returned to the requester. ITINs that haven’t been included on a U.S. federal tax return at least once in the last 3 consecutive tax years will expire. Expired ITINs must be renewed in order to avoid delays in processing the ITIN holder’s tax return. If the IRS deactivates the ITIN because it has expired, the ITIN may still be used on Form W-9. However, the ITIN holder will have to apply to renew the deactivated ITIN if there is a need to file a tax return. If you do not collect backup withholding from affected payees as required, you may become liable for any uncollected amount.