Employers use the W-9 Form to gather basic information about the independent contractors they hire, like name and Social Security number. They use it to prepare year-end 1099 forms that show exactly how much money each contractor was paid. The form is easy to fill out and doesn’t need to be submitted to the IRS. However, if your contractor doesn’t fill out a W9 form, you may face challenges reporting their earnings to the IRS, and in some cases, you’ll be forced to withhold taxes.
How W9 Forms Work
Contractors either print their W9 forms or receive a blank one from the company that hires them. Either way, they should fill it out and submit it to you before you pay them. The W-9 Form requests their tax identification number (TIN), which can be the contractor’s Social Security number or employer identification number. You will need this number when filling out Form 1099 at the end of the year to report the contractor’s gross earnings.
Did you know? You do not need to pay taxes for contractors (or employer taxes for your business), but you do need to report their earnings if they exceed $600 per year. In this case, you’ll send 1099 copies to both the IRS and contractor.
Who Is Required to Fill Out a W9 Form?
Any contractors you hire that are expected to earn more than $600 in a year should fill out a W-9 Form before doing work for your company. Contractors are defined as people who work independently, with control over how and when they complete tasks (within reason, and they don’t receive employee benefits).
Contractors include independent workers, LLCs, C or S Corporations, Partnerships, and Trusts or Estates. If you need to file a 1099 at the end of the year to report a person’s or entity’s earnings, then you need to have them fill out a W-9 Form.
When Should a W9 Form Be Submitted?
If you plan on paying a contractor more than $600 in a year, you should have them fill out the Form W-9 before paying them. However, you must receive the W-9 before the 1099-MISC filing deadline (Jan.31 of the year following payment). For example, if a contractor fulfilled their contract and received pay May 31, 2020, you must receive the W-9 well in advance of Jan. 31, 2021, because that’s the deadline you have to meet for submitting 1099 forms.
If a contractor fails to submit the W-9 or submits it with the wrong information, they could be subject to a penalty.
How Should a W9 Form Be Submitted?
It is the contractor’s responsibility to send you the W-9. It’s helpful to send them a copy or a link to the IRS website. They can download it from the IRS website, fill it out, and send it to you in print or PDF form. To protect the information on the form, it’s best if you supply an encrypted file-sharing service rather than having them email it to you. You do not need to submit the form to the IRS, but you must retain copies in your files for four years.
How to Fill Out a W9 Form: Instructions to Complete
You can fill in the Requester’s name and address, but it’s not mandatory. The rest is for the contractor to fill out. If you want to be helpful, you can give your contractors brief instructions and tips on completing the W9 form.
- Line 1: Print the full name that will show on their tax return. Review it for typos to prevent having to request a revised Form 1099 at tax time.
- Line 2: If there’s a business name, include the legal name as well.
- Line 3: Check the box that most accurately describes their type of business. If in doubt, the most likely response is “individual or sole proprietor.”
- Line 4: If exemptions are applicable, include here. Generally, independent contractors or sole LLCs do not. If the entity is a corporation, trust, or partnership, refer to Page 3 of the full form to get the correct exemption numbers.
- Line 5, 6: Enter mailing address.
- Part II: If there’s an employer ID number (EIN), enter it; otherwise, provide a Social Security number.
- Part III: To avoid confusion, sign with a legal name as it appears in Line 1.
- Part III, Line 2: You may want to point out that if your contractor is subject to backup withholdings, they must cross out Line 2 before signing. In this case, you need to withhold income tax from their pay at a rate of 24% and send it to the IRS.
FAQs About W9 Forms
What’s the difference between a W-9 and a 1099?
The W9 Form and the 1099 Form both pertain to contractors but serve different purposes. The W-9 collects information about your contractor and is used when hiring. The 1099 records the annual amount earned by the contractor and is sent to the contractor and the IRS at the end of the year. Form 1099 is what the IRS uses to determine taxes owed.
Do I have to have every contractor fill out a W-9?
No. Only contractors that you will pay more than $600 in a calendar year should submit a W9 Form.
Does it matter if the $600 is paid over multiple contracts?
No. The number of contracts isn’t relevant; if the contractor receives at least $600 total in earnings within a calendar year from the same company, a W-9 is required.
Do I withhold taxes or Social Security for a contract employee?
Unless they inform you that they need backup withholdings or provide you with the wrong Social Security number (or no W9 at all), you shouldn’t withhold taxes from a contractor’s earnings. Contractors are responsible for their own taxes. Your responsibility is reporting their earnings for the tax year.
How do I know if I need to withhold back taxes for a freelancer?
The contractor will have received a notice from the IRS if they are subject to mandatory backup withholding. He or she should indicate this by crossing out Line 2 in Part III of the form before signing. It’s their responsibility to tell you, but if they tell you, it’s your responsibility to withhold the taxes and send them to the IRS.
Can a freelancer refuse to submit a Form W-9?
Yes, but if so, you should withhold taxes at 24%. The contractor can also be fined for refusing.
It’s a good idea to get a W-9 Form from all contract workers to cover your bases, but you must have them on file for any that earn over $600 in a calendar year; you’ll need the information for filling out the year-end 1099 Form tax forms. You need to keep W-9s for four years in case the IRS or employees come to you with questions. The form itself is easy to fill out, especially for independent contractors or sole-proprietor LLCs. Corporations, trusts, and partnerships need to check for exemptions and note them on the form.