W9 Form Explained
Independent contractors, freelancers, gig workers, and other self-employed individuals use the IRS W9 Form, known as a Request for Taxpayer Identification Number and Certification form, to provide them with the information required to prepare a 1099 form for the contractor’s tax filing purposes.
Table of Contents
Key Takeaways:
- The IRS W9 Form, Request for Taxpayer Identification Number and Certification, is filled out by independent contractors before they begin work for a company to provide them with the information needed to prepare a 1099 form, such as their name, business name, federal tax classification, current mailing address, taxpayer identification number, and potentially a payee code.
- A company may be required to withhold 24% of an independent contractor’s proceeds for backup withholding to ensure the IRS receives income tax if the freelancer fails to provide or provides an incorrect taxpayer identification number, if they have a history of underreporting their income, or if they do not certify that they were not subject to backup withholding.
- If a W9 form is filled out incorrectly, such as having a missing TIN, an incorrect TIN, or not having a selection about whether the payee’s earnings are subject to backup withholding, the payee may receive an IRS fine or face penalties for perjury, and be subject to backup withholding. If the payer does not submit backup withholding to the IRS in this situation, they may face IRS penalties as well.
- W9 forms are similar in function to W4 tax forms except that while both forms are used to report taxpayer identification information to a company and do not need to be filed with the IRS, W9 forms are used by self-employed workers, and W4 forms are used by company employees.
What Is The IRS W9 Form?
The IRS W9 Form, Request for Taxpayer Identification Number and Certification, is a tax form that businesses will sometimes send to a freelancer, independent contractor, or self-employed individual who is doing work for the company to gather the information required to prepare a 1099 form, such as their legal name, address, and taxpayer identification number (TIN).
Another feature of the W9 tax form is that it informs the business whether or not the worker is subject to backup withholding.
What Is Backup Withholding?
The purpose of backup withholding is to ensure that taxpayers pay the appropriate taxes on all forms of income, including freelancing or self-employed income. Backup withholding is a tax that is sent to the IRS on income payments that were not otherwise subject to withholding. Some circumstances require payers to withhold taxes on a contractor’s payments to ensure that the income taxes on those earnings are paid to the IRS.
If independent contractors fail to supply their correct taxpayer identification number on their W-9 form, which is usually their Social Security number (SSN) or their company’s employer identification number (EIN), or if they owe money to the IRS, they may be subject to backup withholding. Independent contractors can also become subject to backup withholding if they fail to report income related to interest, dividend, or patronage dividend.
The company hiring an independent contractor may be required to withhold a flat rate of 24% from the contractor’s payments when:
- They do not provide their taxpayer identification number on their W-9 form
- They provided an incorrect taxpayer identification number on their W-9 form
- They have a history of underreporting their income on their federal income tax return, usually involving the IRS sending multiple notices over at least a 3 month period
- They did not certify that they are not subject to backup withholding
How To Prevent Backup Withholding
Individuals are usually able to prevent owing extra money through backup withholding by ensuring they filled out the W-9 tax form correctly and on time, and by filing their tax return and paying their tax liability on time every year.
If an independent contractor realizes that they have experienced backup tax withholding when they receive a 1099 form from a payer, it is important that they report this figure as federal income tax withheld when they file their tax return during the tax season.
Who Must Complete W-9 Tax Forms?
If a business or company where you have completed contracted work needs to gather their information to prepare a 1099 form, they may request that those workers complete a W-9 form to provide that information in a written form.
The types of workers that may be requested to complete a W-9 tax form include:
- Freelancers
- Gig workers
- Independent contractors
- Self-employed workers
Employee Vs. Self-Employed Contractor
Among the types of workers who are required to complete a W-9 tax form to provide the company with their tax identification information and tax withholding requests, employees are not included.
The IRS defines the difference between these types of workers based on the degree of control and independence the workers have in regard to their behavior, finances, and the type of relationship they have with the company.
Employees of a company are required to behave and act according to the direct instructions of the company, whereas independent contractors have more flexibility about how and what type of work is done.
Employees of an organization are also in compliance with the financial decisions of the company, including their payroll system, their supplied equipment, and whether expenses are reimbursed. Self-employed individuals will have more authority to determine the payment system and usually provide their own equipment related to their services.
Employees of a business are often offered additional benefits for signing on with the company, such as pension plans, health insurance, retirement plans, and vacation pay, whereas freelancers are usually responsible for organizing their own health insurance and retirement plans.
Who Must Request A W-9 Form?
The person responsible for conducting payroll tasks for a business or company is the individual who must request the W-9 tax form be filled out by the freelancers who have completed independent work for the organization.
Individuals who request this tax form from workers are not required to file the completed form with the IRS or another government agency.
Instead, the information reported in this IRS form is used to prepare other tax documents, such as 1099 forms, to determine if the company is responsible for federal tax withholdings, and to store in their records.
When Must W-9 Forms Be Filled Out?
In order to streamline the process of companies working with independent contractors, it is beneficial that the company requests that the freelancers complete a W-9 tax form before they begin any work.
Technically, only independent contractors who earn above the minimum income threshold of $600 are required to receive a 1099 form from the companies they do work for, but filling out a W9 form regardless can solve problems before they arise. In the case that the freelancer begins work tasks before the form is filled out and any discrepancies arise that conflict with the agreement, it becomes more complicated to resolve without the information being provided in a W-9 form.
If an independent contractor is about to start working with a business, it is beneficial for them to ask for a W-9 form if they haven’t been provided with one already. By requesting this form before starting work, the self-employed worker can ensure that they will receive accurate payments from the company and that they are in agreement about tax withholding.
What Information Is Required On A W9 Form?
There are several pieces of information that an independent contractor must include when filling out a W-9 form for their client that a company will later use to fill out their income report using a 1099 form. This includes:
Their name or business name
Independent contractors may conduct their freelancing work as an individual, and in this case, the name of the payee they will need to input on their W-9 form is their legal first and last name. Other times, gig workers may conduct their contracted work for their own business, and in these circumstances, they must enter the name of the business that is entered on the legal LLC formation documents. However, if the business is considered a “disregarded entity” by the IRS, such as an individual/sole proprietorship, or a single-member LLC, this name may be different.
Their federal tax classification
Contractors filling out the W-9 form must also enter their federal tax classification by checking the appropriate box listed on the tax document. The tax classification options on Form W-9 include:
- Individual/sole proprietor or single-member LLC,
- C Corporation
- S Corporation
- Partnership
- Trust/estate
- Limited liability company (LLC)
- Other
Their taxpayer identification number (TIN)
Independent contractors must enter an accurate taxpayer identification number into their W-9 forms for payroll and tax filing purposes. If a U.S. citizen is conducting their freelancing work as an individual or sole proprietor, their Social Security number will likely be the TIN used.
Taxpayers conducting freelancing work under other companies and entities will usually have an employer identification number (EIN) that is associated with the business name for all tax-related matters, including filling out W-9 forms.
Payee Code
Certain circumstances will also require the input of an exempt payee code, which exempts the payee from having taxes withheld from their paychecks.
W-9 Form Accuracy Requirements
It is essential that all of the information reported on W-9 tax forms is accurate to avoid any IRS penalties for perjury.
What happens to independent contractors who fill out a W-9 form incorrectly?
If an independent contractor makes an error when filling out the W-9 form for a company, such as failing to provide their taxpayer identification number, providing an incorrect taxpayer identification number, or not selecting whether they are subject to backup withholding, they may receive an IRS fine or face penalties for perjury.
What happens to payers who receive an incorrectly filled out W-9 form from a contractor?
If the company hiring an independent contractor, also known as the payer, receives an incorrect W-9 form from the freelancer, such as a form with an incorrect taxpayer identification number, or if they do not receive a W-9 form at all, the IRS requires the business to withhold a flat withholding rate of 24% of each paycheck until an accurate form is submitted.
If the payer does not submit backup withholding to the IRS for independent contractors who have made accuracy errors, they may face IRS penalties. IRS accuracy penalties for W-9 forms are easily avoided by requiring any independent contractor to fill out a W-9 form before they begin any contracted work for the company.
How To Fill Out A W9 Form
Here are the instructions for how independent contractors can fill out a W-9 form to send to the company for which they plan to do contracted work.
Top Section
Within the top section of the tax form, the independent contractor must enter personal identification information about themselves or about the business they do contracted work under.
Line 1:
On line 1, the independent contractor must enter their name as it is written on their income tax return.
Line 2:
On line 2, the independent contractor must list their business name or disregarded entity name, if it is different from their personal name.
Line 3:
Under line 3, the freelancer must select whether their tax classification is individual/sole proprietor or single-member LLC, C corporation, S corporation, partnership, trust/estate, limited liability company, or other.
Line 4:
In section 4, independent contractors will most commonly leave the two boxes unchecked. The two exceptions are:
1. If the contractor is exempt from backup withholding, they may be required to enter an “exempt payee code.”
2. If the contractor is exempt from reporting under the Foreign Account Tax Compliance Act (FATCA), they may be required to enter an “exemption from FATCA reporting code.”
Lines 5 and 6:
On line 5, the freelancer must include their most up-to-date mailing address, including the number, street, apartment or suite number, city, state, and ZIP code. This address should be the same as the address that they use on their income tax returns.
Line 7:
Line 7 is an optional space for the independent contractor to provide the name and address of the business requesting the W-9 form. It may be beneficial to fill out this section to keep track of all the businesses to whom they provided their TIN.
Part I - Taxpayer Identification Number (TIN)
The next section of the W-9 tax form called Part I is where the independent contractor must provide the taxpayer identification number that they use for their freelancing work. This TIN could be either their individual Social Security Number or it could be their employer identification number if they operate under a different tax classification.
If the independent contractor is operating under a new business entity and has applied for an EIN but does not have the number yet, they can write “applied for” in the section where the TIN must be placed. However, it is important that they realize that until they provide the EIN number, they will be subject to backup withholding.
Part II - Certification
Part II of the IRS W9 Form is where the taxpayer must provide their signature and the date to certify four pieces of information under penalties of perjury, which are:
1. The accuracy of the TIN they provided
2. Their exemption from backup withholding
3. Their U.S. citizenship or that they are a U.S. person.
4. The accuracy of the FATCA code(s) provided, if any
Other IRS Tax Forms
There are several types of IRS tax forms that are related to or confused with the W-9 tax form, such as the W-4 form, W-2 form, and 1099 form.
IRS Form W-4
The IRS W-4 Tax Form is similar in function to the IRS W-9 Tax Form as the purpose of both of these forms is to report information regarding identification and tax withholdings to the company they are working for.
Another similarity between these two forms is that they are used to report information and fill out other tax forms, and they do not need to be filed with the IRS.
However, while W-9 tax forms are filled out by independent contractors who file taxes as self-employed workers so that the company they work for can fill out a 1099 tax form for them, W-4 forms are filled out by employees of a company so their employer knows how much tax to withhold from their paychecks.
IRS Form W-2
While IRS Form W-2 sounds similar in name to IRS Form W-9, these forms are different in their purpose, who fills out the form, and filing requirements.
IRS W-2 Forms are filled out by employers and sent to their employees by January 31st following the end of the tax year, whereas IRS W-9 Forms are filled out by independent contractors and sent to the company they are contracted to do work for at the time the contractor is hired.
Within W-2 Forms, employees can access a record of how much they were paid throughout the tax year and how much tax was withheld from each of their paychecks. Within W-9 Forms, companies can access identifying information about the freelancer, such as their name, address, and tax identification number (TIN).
W-2 Forms are used by employees to file their federal income tax returns with the IRS. W-9 forms are used by employers to fill out 1099 forms to send to their contractors.
IRS Form 1099
Both IRS Form 1099 and IRS Form W-9 are used in relation to independent contractors working for a company, but these tax forms have different purposes.
IRS Form 1099 is a tax form that is filled out by a company at the end of the tax year by reporting all of the income they paid to a contractor. IRS Form W-9 is filled out by an independent contractor at the beginning of a job, providing taxpayer information that a company will need to fill out a 1099 form.
While 1099 forms are filed with the IRS, W-9 forms are not sent to the IRS. Instead, they are used to gather information needed for filing taxes and stored for record-keeping purposes.
As an independent contractor, completing an accurate W-9 form when working with a new company is essential to ensure they get paid for the work they complete and avoid unnecessary penalties from the IRS.
If you have any questions about completing a W9 form, or if you want to ensure the highest tax refund possible based on your tax rate, tax bracket, and filing status by claiming any appropriate personal exemption, tax credit, and tax deduction, consulting with a professional tax preparer is an excellent strategy.
Whether you have a specific issue, such as deciding if an itemized deduction or standard deduction would save you more money during tax filing, or if you need help throughout the entire tax filing process, get started by scheduling a free consultation with the tax experts at Ideal Tax today.
Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.
