A W9 is an Internal Revenue Service (IRS) form that’s used to gather information about a contractor so that their earnings can be reported at year-end. Conversely, a 1099 (1099-MISC) is the document that’s issued at year-end to show how much income the contractor earned.
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Disclaimer: Tax laws change frequently. For the most up-to -date information please refer to the IRS.gov website or your tax accountant.
Purpose of a W9 vs 1099
As an employer, you receive a W9 and submit a 1099. Your contractors use the W9 to give you the information you need, like name and addresses, to report their earnings at year-end. The 1099 is what you’ll give contractors at year-end so they can report and pay taxes on the earnings you paid them.
Why You Need Tax Forms for Contract Workers
When paying contractors, you’re not required to withhold or pay taxes, such as FICA, when doing payroll. However, gathering, tracking, and reporting their earnings on the appropriate payroll form is vital, because the IRS requires them to pay taxes on their own. Although you’re not responsible for making sure your contract workers pay taxes, you do have the burden of ensuring they receive accurate earnings information by Jan. 31 of the following year to comply; otherwise, you can be penalized.
To reiterate, a W9 is used to collect information, whereas a 1099 is used to report it. Let’s take a look at an example of how they’re used for an independent contractor doing work for your small business.
When to Use a W9 vs 1099
A W9 is used to collect contractor information, such as name, address, and Social Security number. A 1099 is used to report their income at year-end if they earned $600 or more. The IRS has many rules and caveats for when to use a W9 vs 1099, and what kind of 1099 to use.
The illustration below shows how a W9 is used for many different business reasons, resulting in 1099s. However, this article will focus primarily on using it for a contractor, resulting in a 1099-MISC being issued at year-end. We’ll look at the 1099-MISC in more detail later in the article.
We also advise you to consider when to use a W-2 Form vs a 1099-MISC, such as when you hire employees or workers who don’t meet the requirements of a 1099 contractor.
What is a W9 Form?
The W9 form, Request for Taxpayer Identification Number and Certification, is an IRS document used to gather data your business needs to report to the IRS at year-end. However, since IRS forms change, your best option is to use the IRS website as your primary source for any IRS tax forms or instructions. You’ll find detailed directions there to help your contractors complete the form correctly.
Once your contractor completes the W9, keep a copy of it on file in case you’re ever audited. The completed and signed W9 demonstrates that you gathered the correct data for the taxpayer. The IRS does not need a copy of this document.
Where to Find a W9
You can download the W9 document and instructions in English or Spanish from the IRS website using the links below, or go directly to IRS.gov and search for “W9.”
- Download a blank copy of the W9 Form
- Download a blank copy of the W9SP Form (in Spanish)
- View instructions to complete Form W9
What to Fill Out On a W9
Once you understand what a W9 is, it’s easy to comprehend why you need to collect the proper information. While most of the data fields are self-explanatory, like name, address, and tax classification, a common question is what is a TIN. The TIN is the taxpayer identification number. For independent contractors who don’t have a business entity, it’s their Social Security number. Business owners and contractors will use their federal employer ID number as their TIN.
If the contractor doesn’t provide a TIN, you must withhold 28% for federal taxes per IRS regulations. In turn, this should be reported on the 1099-MISC at year-end. If you have trouble filling out the W9, the IRS website has instructions and resources to help.
When to Use a W9
The best time to gather contractor data on a W9 is when you first begin working with the contractor. That way, if they earn over $600 in the tax year, you’ll already have the information needed to complete the year-end 1099.
In addition, if you use payroll software like QuickBooks Payroll, W9 and other tax documents are provided and often available for e-signature and online storage, helping you maintain a paperless payroll system.
What is the 1099-MISC Form?
The 1099-MISC is an IRS document that’s used to report all kinds of income, such as that received by an independent contractor for work provided to a business or private employer. It’s like an employee’s year-end W-2 with similar data fields, but used by businesses that pay non-employee contractors such as freelancers or contract workers.
Typically, you should use a 1099-MISC to report payments made to a contractor who earns $600 or more in a tax year. However, there are other reasons a person might receive a 1099-MISC.
Here are a few alternative scenarios in which a 1099-MISC is needed:
- Report crop insurance proceeds: Money insurance companies pay farmers for crops that are damaged or destroyed
- Record fishing boat proceeds: For self-employed crew members earning money on a fishing boat or vessel
- Disclose golden parachute payments: Severance pay, cash bonuses, and stock options given to terminated employees
For typical contractors, those boxes will remain blank on the report. Like the W9, the 1099-MISC, as well as instructions to use it and a definition of every field, are available to view or download by searching for 1099 on the IRS website.
Where to Find a 1099
You can download the 1099 document and instructions from the IRS website, using the links below, or go directly to IRS.gov website and search for “1099-MISC.” The 1099-MISC is not yet available in Spanish.
The best payroll software makes it easy to import payroll data into an electronic 1099 form, so you don’t have to download or purchase and mail paper copies. This saves you from having to spend money on forms and stamps and provides more accuracy than calculating earnings manually.
What to Fill Out On a 1099
For a 1099-MISC, you’ll add your information under “Payer’s Name” and the contractor’s information under “Recipient’s Name.” Then you’ll show how much you paid in gross income, in Box #3, “Other Income.” You’re not likely to have taken out federal or state income taxes, so leave those boxes blank. Check out our complete article on the IRS 1099 form reporting or download the 1099-MISC instructions for more details.
When to Issue a 1099
You’ll issue a 1099-MISC form at year-end for any contractor who has earned $600 or more during the tax year. A copy of the 1099 is sent to the contractor as well as to the IRS. Just like an employee’s W-2, the 1099-MISC must be sent by Jan. 31 following the tax year-end.
Rules for Non-resident Aliens and Foreign Entities
Although the 1099 is used for reporting payments to independent contractors, if the contractor is a non-resident alien or foreign business entity, an IRS Form 1042-S is used instead. This form accounts for unique tax withholding rates and foreign treaties. The IRS provides a webinar on 1042-S that explains what a 1042-S is and when to use it.
Other Kinds of 1099s
Because W9s are used to gather information for all kinds of future 1099 payments, we’ve included a few of the common 1099s below. Each 1099 is linked to the IRS webpage where the downloadable documents and instructions for using them can be found.
1099 DIV — Used to report dividend income and distributions
1099-C — Used for cancellation of debt in amounts of $600 or more
1099-K — Used for merchant cards and third party network payments
1099-INT — Used to report interest income in amounts of $10 or more
1099-S — Used to report proceeds from real estate transactions
Avoiding Mistakes When Issuing 1099s
While IRS rules are pretty clear, there are little mistakes that may require you to re-issue a 1099. For example, make sure your 1099 form includes the full name of the contractor. Double-check the spelling, TIN number, and the payment amount. You don’t want the contractor to have to pay taxes on $6,000 when they only earned $600.
Other common mistakes include:
- Issuing 1099s to employees: Employees should receive W-2s instead.
- Issuing 1099s to corporations: You don’t need to. Only independent contractors that work for you need 1099s. If you hire a corporate business to do a service, like clean your office each week, no 1099 is needed.
- Missing the Jan. 31 due date: You must submit all 1099-MISC forms with non-employee compensation (in “Box 7” of the 1099) by Jan. 31 of the year following the year for which you’re reporting. Other reported income may be submitted later.
- Sending wrong 1099 copy to IRS: The IRS provides five copies of the 1099 online, one each for federal and state returns, the contractor, and your records. It also gives an example (that shouldn’t be printed and submitted) of the original one you will submit to the IRS. Printing and submitting this copy (the copy in red ink) can lead to penalties.
- Filing the wrong type of 1099 form: There are numerous 1099 forms. 1099-MISC is what you need to submit to report income for independent contractors.
Penalties For Not Submitting a 1099
Aside from having to reissue incorrect 1099s, you are also subject to penalties. The IRS decreased them in 2019, but you could end up paying up to $270 per return, if you’re not careful. You can be charged separate penalties for not filing correct 1099 copies with the IRS and not submitting to your contract workers.
You may incur the following penalties if you fail to file 1099s timely and accurately:
- $50 per return if you correctly file within 30 days after the deadline (by March 2 if the due date is Jan. 31)
- $100 per return if you correctly file more than 30 days after the deadline but by Aug. 1
- $270 per return if you file after Aug. 1 or you don’t file at all
If your business averages annual gross receipts of $5 million or less for the three most recent tax years, your maximum penalties are less than penalties the IRS charges larger companies. The most you can be charged is $1,091,500 and that’s only if you fail to file your 1099s at all or wait until after Aug. 1. If you file within 30 days after your deadline, you can only be charged up to $191,000.
If you intentionally file a fraudulent information return for payments you claim to have made to another person, you may be liable for damages. The person can sue you for up to $5,000 or more in civil damages.
W9 vs 1099 Frequently Asked Questions (FAQs)
In this article, we’ve discussed the differences between a W9 and 1099. We realize that some questions are asked more frequently than others, and we’ve tried to address those here. If we haven’t answered your question, feel free to share it with us in our forum and we’ll provide an answer.
Here are some of the most frequently asked questions about W9s vs 1099s:
What happens if a contractor won’t provide a TIN to complete the W9?
Sometimes contractors are suspicious of what a W9 is. If they refuse to provide a TIN, the IRS requires you to begin backup withholding immediately. This means you must withhold 28% on any payments you make to them until they provide you with a TIN. You will need to send an official TIN request to the contractor each year to protect yourself from penalties. In addition, you must remit any taxes you withheld to the IRS.
Do I need a W9 from anyone I pay that’s not an employee?
You don’t have to collect a W9 from certain entities, like corporations, or contractors you pay less than $600 annually. However, it won’t hurt. Some businesses require W9 forms from all vendors before they will pay them. This gives them the information they need to set up these vendors in their accounting system. If you choose to do this, just remember to only submit 1099 forms to vendors you pay over $600 annually and that aren’t incorporated.
Do I have to pay taxes on a W9?
You don’t pay taxes on a W9. It’s a document you use to gather information to enter on your contractor’s year-end 1099. The contract worker can then pay taxes on all earnings reported on the 1099.
What is a W9?
A W9 is a form employers use to document identifying information, like name and Social Security number, from contractors (before beginning work with them) so they are able to report the total payments to the IRS at year-end. Employers report the payments on a 1099-MISC form and send to both the contractor and the IRS.
Are there any exceptions to being charged penalties on filing late or inaccurate 1099s?
Yes, there are some exceptions to the IRS penalties. If you can show that any errors you made were caused by events out of your control, you may be able to avoid penalties. You will have to show you acted responsibly and document the steps you took to avoid failure. You might also be eligible for a lower penalty if you file your 1099s timely, even if the information is incorrect.
The relationship between a W9 and 1099 is that the W9 gathers the data that’s later reported to the IRS on a 1099-MISC for contractors that you pay $600 or more in a tax year. A copy of the W9 is kept in your business files, while copies of the 1099-MISC are provided to the IRS and to your contractor. The contractor then uses the 1099 to report their income when filing their taxes.
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