If your annual compensation exceeds $600, you will be asked to fill out Internal Revenue Service Form W-9 by the company for which you are providing services. This form will be used by the company to fill out its Form1099-NEC. This report reports to the IRS how much income is paid to non-employees.
Due to the sensitive information required in the form, primarily your taxpayer ID number (TIN), which can be either your Social Security number or your employer ID number, you should ensure that the entity asking for the form is legitimate.
What is IRS Form W-9?
The IRS created Form W-9, which provides taxpayer information to the requester. It’s not filed with IRS. Instead, it is returned to the requester.
Independent contractors fill out the form for companies that do not employ them full-time. The form is not required if you receive less than $600 per year from a company.
The information is used by companies to report to IRS the amount of non-employee pay they received in a particular tax year. To provide this information, companies will again use Form 1099 -NEC starting with 2020. In 1982, the form was discontinued. Form 1099–MISC took its place. For payments to non-employees in 2019, companies will continue to use 1099-MISC.
Who uses Form W-9
Non-employees performing work for companies must be sent the W-9 form to them. Workers must then return the completed form back to the company.
A company can also create its own version of Form W-9, provided that it is substantially the same as the IRS form and lists the same certifications. 4
Where can I get a W-9 Form?
Most often, the contracting business will send you a W-9 form and ask that you complete it.
What to do if you don’t receive a W-9
You can download the Form from IRS if you are an independent contractor who didn’t get a W-9 form from a company that you have done more than $600 in work for.
How to fill out and read Form W-9
It is easy to complete Form W-9. If your business name is different than yours, please fill out the form. Your federal tax classification (such as individual/sole proprietor, single-member limited liability business [LLC], C corp, S corp, partnership, trust, estate or S corporation]) will be selected. Then, write your address.
If you are exempt from reporting under the Foreign Account Tax Compliance Act, (FATCA), or backup withholding, please fill out any codes. However, sole proprietors are not generally exempted from backup withholding. Corporations are exempted from backup withholding for payments like interest and dividends.
Backup withholding refers to when a paying entity holds 24% of your payment in federal income taxes. Independent contractors are usually responsible for their own taxes.
Foreign Account Tax Compliance Act (FATCA), which applies to foreign financial institutions, almost certainly does not apply to you. For more information about these exemptions, and the codes they are used, please see pages 3 and 4, of Form W-9.
Fill in Part I with your TIN. Sign and date Part 2. The IRS will accept your TIN as valid. You also certify that you are a U.S. citizen or another U.S. person and that the codes you have entered are correct.
You would have received notice from the IRS if you were subject to backup withholding. The company that paid you would then have to withhold 24% in federal income taxes. Backup withholding could be due to two reasons: you haven’t previously provided your correct tax identification number (TIN) or you have failed to properly report your dividend and interest income on your federal income taxes return.
Potential Problems with the Form
The W-9 form is a standard tax document. It doesn’t present any problems by itself. However, there are some situations that could raise a red flag.
- It’s not possible to know the business or person asking you to complete the W-9. Be careful about giving out sensitive information such as your TIN. You should be able to identify the person asking you to complete the form. Also, make sure you understand why they are doing it. And, what is the purpose of the tax information that you provide?
- This is a way for someone to gain access to your private information. Do not send your W-9 in an unencrypted or unsecured email attachment. Secure delivery methods include hand delivery or encryption of files in emails.
- What you expected was a Form W-4. When you start a new job, your employer will give you a W-9. Ask whether you’ll be self-employed or an employee. To determine their tax withholdings, employees must complete Form W-4 and not Form W-9.
How often should I update a form W-9?
If any of the information on your previous Form W-9 has changed, you should fill out a new one. If your name, address or Social Security number have changed, fill out a new Form W-9.