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IRS Form W-9, Request for Taxpayer Identification Number and Certification, is used by businesses to request personal information from an independent contractor, freelancer, or vendor. The form is not actually filed with the IRS, but rather is used to collect the information that a business needs to accurately fill out 1099-NEC forms for the people and companies that they pay.
Who Uses Form W-9?
A business that pays an independent contractor, freelancer, or other vendor at least $600 per year is typically required to file an information return to the IRS, such as a 1099 form. To fill out this information return correctly, the business needs some demographic and business information about the person or business they’re paying.
Form W-9 is used to collect this information safely and legally. The business who has hired an independent contractor or other vendor requests that they fill out a W-9, which is sent back to the business once completed. The business can then keep Form W-9 on file. It is not typically submitted to the IRS.
Banks and brokerages that need to file 1099 forms about their customers also frequently request W-9 forms. If you pay interest on a mortgage, have a brokerage account, or earn dividends, you may be asked to fill out a W-9 form.
Individuals and businesses who receive a Form W-9 request should ensure that the request comes from a business entity with which they are working. Moreover, an individual who is an employee of a company should not receive a W-9 form.
When Should Form W-9 Be Filled Out?
Businesses that begin working with an independent contractor or vendor should request a Form W-9 before work begins. Receiving a W-9 form right away ensures that the business won’t run into problems filing a 1099 or other required tax forms later. Bear in mind that it might be difficult to track down a contractor once the job is completed.
It’s advisable to have your Form W-9s collated before January 1, so that you can have them to hand to help you complete the 1099-NEC forms by the filing deadline.
What Is Reported on Form W-9?
Form W-9 asks for basic information about an individual or business. Individuals must enter their name, address, and social security number or individual taxpayer identification number (ITIN).
Businesses must enter the owner’s name, the business name, the business’s classification, and the business’s employer identification number (EIN). Sole proprietors may enter either their social security number or EIN. If you have an LLC, it is typically more appropriate to enter your business’s EIN.
Form W-9 must be signed and dated to signify that the information provided is accurate.
Backup Withholding
If an individual or business fails to file Form W-9 when requested, or if they fill it out incorrectly, they may be subject to backup withholding. Once backup withholding begins, the payer is required to withhold 24% of all payments and submit them to the IRS for income taxes.
Individuals or businesses may also be notified directly by the IRS that they are subject to backup withholding, usually as a result of misreporting their taxes in a prior year. If this is the case, you must cross out Line 2 under Part II of Form W-9, which states that the filer is not subject to backup withholding.
Backup withholdings can be reported to the IRS when filing taxes at the end of the year to reduce a payee’s tax bill.
Form W-9 versus Form W-4
Businesses request taxpayer information from an independent contractor or vendor not on their payroll using Form W-9. They request taxpayer information from an employee using Form W-4.
The key difference is employers must withhold federal income taxes from employees, but they are not responsible for withholding for independent contractors (unless backup withholding is required). Form W-4 tells employers how much they should withhold from an employee’s paycheck.
Conclusion
IRS Form W-9 is used to collect information, including social security numbers and employer identification numbers, from an independent contractor or vendor. Businesses typically need this information to fill out an information return such as a 1099 form. Individuals may also be asked to fill out a W-9 form by their bank or brokerage.
