When you begin working with a contractor or freelancer that you will be paying, you should request that the contractor complete a Form W-9 prior to starting any engagement. Failing to do so could prove troublesome after beginning the work. According to the IRS, millions of W-9 forms are processed annually. These forms are essential for businesses to report payments made to independent contractors, freelancers, and other non-employee service providers.
In this blog, we’ll dive into what the W9 form is, why it’s a must-have for your business, and how it helps keep your financial records in tip-top shape. Let’s make sure your collaborations start on the right foot, with all the necessary paperwork in place!
Key Takeaways
- Form W-9 is an Internal Revenue Service (IRS) tax form that is used to confirm a person’s name, address, and taxpayer identification number (SSN or EIN) for employment or other income-generating purposes.
- If a contractor refuses to provide a W-9, businesses should document your request attempts and begin backup withholding at a rate of 24% on their payments and report this to the IRS.
- Information collected by an entity on a W-9 form cannot be disclosed for any other purpose under strict privacy regulations.
Purpose of W9 forms
If you wonder, why would someone request a W9? The answer is simple: businesses request a W-9 form to obtain the necessary taxpayer information from individuals or entities they pay for services. This form provides the business with the recipient’s name, address, and taxpayer identification number (TIN), which is essential for reporting payments to the IRS. Businesses need this information to prepare various informational returns, such as Form 1099, which reports payments made to non-employees, like independent contractors, freelancers, or vendors. By collecting this information, businesses ensure compliance with tax laws and avoid potential penalties for incorrect reporting.
What to do if the contractor won’t provide w9?
There are several reasons why a contractor might refuse to provide a W-9 form.
- They might be concerned about privacy and the security of their personal information, especially their Social Security Number (SSN) or Employer Identification Number (EIN).
- Some contractors may not understand the importance of the form or may be wary of tax implications.
- In other cases, they might be avoiding tax reporting altogether.
If a contractor refuses to provide a W-9, you should document your request attempts and inform them of the requirement. If they still refuse, you may need to begin backup withholding at a rate of 24% on their payments and report this to the IRS.
Form W-9 vs. Form W-4
W-9 Form: Request for Taxpayer Identification Number (TIN) and Certification
- Who Uses It? Independent contractors, freelancers, and self-employed workers.
- Purpose: Provides the employer or payer with the worker’s Taxpayer Identification Number (TIN) (usually a Social Security Number or Employer Identification Number).
- Tax Withholding: No taxes are withheld; the recipient is responsible for paying self-employment taxes.
- Common Usage: Given to businesses by contractors so the business can issue Form 1099-NEC or Form 1099-MISC at tax time.
W-4 Form: Employee’s Withholding Certificate
- Who Uses It? Employees who receive a regular paycheck from an employer.
- Purpose: Tells the employer how much federal income tax to withhold from the employee’s paycheck.
- Tax Withholding: Taxes are withheld by the employer and sent to the IRS.
- Common Usage: Filled out by employees when starting a new job or when they want to adjust their withholding.
Key Differences:
| Feature | W-9 | W-4 |
|---|---|---|
| Who Uses It? | Independent Contractors | Employees |
| Purpose | Provide TIN for tax reporting | Determine tax withholding |
| Withholding? | No tax withholding | Federal tax withholding |
| Tax Form Received at Year-End | Form 1099-NEC or 1099-MISC | Form W-2 |
| Submitted To | Business paying the contractor | Employer |
Is a W-9 Used for Self-Employed Individuals?
Yes, a W-9 form is commonly used by self-employed individuals, including independent contractors and freelancers. When you work with a business as a self-employed person, they may request you to fill out a W-9 form. The form provides taxpayer’s information, used to report payments made to you to the IRS.
Fact: Completing a Form W-9 is required whether you are subject to withholding or not. If you are exempt, this form is your means of communicating that exception to the paying party.
Ready to request Form W2 from your vendors or contractors? Tax1099 offers a simple, secure, and efficient way to request Form W-9, ensuring compliance and streamlined data management.
