A W-9 Form: What Is It?

Independent contractors’ tax information is requested by businesses using IRS Form W-9.

Businesses utilize Form W-9 to obtain income tax identification numbers from independent contractors who receive $600 or more in annual compensation.

Gig workers, freelancers, and anybody else who receives payment outside of an employer-employee relationship may need to complete W-9 forms.

W-9 status holders typically don’t have income taxes deducted from their paychecks, in contrast to employees. An independent contractor’s clients instead report payments to the IRS, and it is up to the employee to make up the difference come tax season.

Who Is Required to Complete a W-9 Form?

It’s a good idea to have a fundamental understanding of when these forms are necessary, whether you’re filling one out yourself or asking someone else to.

The IRS advises businesses to get a W-9 form when paying independent contractors who meet the following requirements:

  • The employee is not the worker.
  • The payment is a component of your enterprise.
  • The payments have a minimum annual value of $600.

So, businesses are required to add up their payments to W-9 employees at the end of the year and report them to the IRS and the contractors, typically on Form 1099-NEC.

More Applications for the Form W-9

Although independent contractors typically use Form W-9, there are a few other instances in which a firm could ask for a finished form. Interest income, dividend income, and sale proceeds from investments are a few examples.

What Details Are on the Form?

The tax identification number of the person being paid is the main piece of data that businesses gather on a Form W-9. This could be a taxpayer identification number or a Social Security number (in some cases, it can also be an employer identification number)

Backup Withholding – What Is It?

Businesses are required under backup withholding to set aside advance taxes for customers who have had specific tax problems. Some issues include giving a false tax identification number or failing to disclose interest or dividend income.

These are some other details that a taxpayer would need to include on the form:

  • Full name
  • Address
  • Categorization of taxes (sole proprietorship, LLC, partnership, etc.).
  • Any exemptions from filing taxes

What Distinguishes Form W-9 From Forms W-4 and W-2?

The fundamental distinction between Form W-9 and Form W-4 is that the former is used for payments to independent contractors and other non-employees, whilst the latter is used for more conventional employment connections.

Although these forms gather a lot of the same data, they reflect various business partnerships. Importantly, Form W-4 asks for details needed to determine tax withholding.

Those who are in conventional employer/employee settings are likewise more likely to use Form W-2. So, employers send the W-2 to employees as proof of compensation for use in filing a tax return.

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