Internal Revenue Service (IRS) tax forms are used to report financial information in the US. There are over 800 IRS tax forms to know and getting basic information on what they are and when to use them can be quite challenging. This guide will help you to understand how one of the most common types of tax forms can help you.
A W-9 form is a standard IRS form. If you’re self-employed or own a business, a client may ask you to complete and send a W-9 form so they can; accurately prepare your 1099-NEC, report the payments they make to you at the end of the year, and determine whether or not you are subject to backup withholding.
Backup withholding is money taken from your paycheck and sent to the IRS from income payments that aren’t subject to withholding.
Before starting any work with a contractor or freelancer, you should ensure that they submit a Form W-9. Failure to do so may cause problems once the work begins. For example, if a contractor refuses to provide a W-9 when requested, they face a $50 penalty.
Information needed on a W-9 form
A W-9 form requires the payees:
- Name or company name (if the person you are paying is operating as a business entity)
- Federal tax classification and how they intend to file their taxes for this income. The payee will need to select one of the following:
- Sole proprietorship
- Single-member LLC
- C corporation
- S corporation
- Limited liability company (LLC)
- Or other
- Sole proprietorship
- Current postal address
- Taxpayer identification number (TIN). This is usually the social security number of a self-employed citizen. The TIN will be the employer identification number for other entities and businesses. In addition, foreign residents must apply for a special individual taxpayer identification number (ITIN).
- Exempt payee code, which tells the requester that the payee is exempt from having taxes withheld
When you should not fill one out
If you receive one from someone you don’t know
If you’re a contractor and you get a Form W-9 from a noncustomer, don’t fill it out. Sending your Social Security number (SSN) and other sensitive information to an unknown individual has its risks. Scammers will occasionally mail W-9s to unwary people to get their Social Security numbers.
If you have any doubts regarding a W-9 you’ve been provided with, always ask which tax forms they intend to send you. Keep in mind that the only reason anyone would require a W-9 is to give you some type of IRS form.
If your employer sends you one
Employers should ask you for a W-4 form instead of a W-9. If you start full-time work and your employer delivers you a W-9, it might mean that you have been employed as an independent contractor rather than an employee, and you may be responsible for tax payments to the IRS.
When to request a W-9 form
Form W-9 is required when conducting business with independent contractors and freelancers. You must collect this form if your company pays individuals or small businesses more than $600 each for completed work and those people are not your employees.
Your company is not obligated to pay Social Security or Medicare taxes, nor is it required to withhold income taxes from payments made to independent contractors. As a result, the IRS wants to know who is paying so that they know who to collect from. Keep your W-9s safe and use them at the end of the year to report how much you paid each contractor.