When you agree to perform services or work as an independent contractor for another business, you are likely to be required to complete IRS Form W-9. This form is required in business-to-business relationships where more than $600 will be paid to a vendor in a calendar year. This form ensures that every vendor that a company does business with is required to report their income and pay their taxes.
What is Form W-9
The form is titled “Request for Taxpayer Identification Number and Certification.” The form does just what that title implies--it is a request from a business to a vendor for certain identifying information for tax reporting purposes. The requesting business does not file the W-9 with the IRS. The form is for their internal accounting and the information that is provided is used to prepare Form 1099-MISC at the end of each year. The 1099-MISC is provided to you at the end of the year and it is filed with the IRS. The 1099-MISC reports how much total money was paid from the business to the vendor during the year and forms the basis for the vendor’s reporting of income on their tax return for the year.
When is Form W-9 Required
When any self-employed person such an independent contractor, consultant, or freelancer earns more than $600 during a calendar year from a single business, a W-9 is required. If you start a new job and are given a W-9 to complete, you are being considered as an independent contractor rather than an employee. Employees complete a Form W-4, which requires different information than a W-9. Employers are responsible for withholding taxes from the paychecks of W-4 employees, but companies do not normally withhold anything from payments to W-9 contractors. Obviously, how you are considered by a company paying you money makes a significant difference in your tax planning.
Completing the Form
Often, you will be provided a blank W-9 from the business requesting it from you. If a form is not provided, you can download blank W-9s from the IRS website.
The first line of the form is for your full name as it will appear on your federal income tax return. The second line of the W-9 is for any business name you use. The next block asks you to select whether you are taxed as an individual/sole proprietor, partnership, corporation, LLC, or other listed entities. Business entities also have certain exemptions they might need to designate on the form as instructed. You will also provide your mailing address as it will appear on your tax return for the year.
Next, the form requires your taxpayer identification number (TIN). This is your Social Security number, or if you are a nonresident alien you will enter your assigned TIN. When you are filing and reporting as a partnership, corporation, or estate, you will enter your assigned employer identification number (EIN) on this line.
Some taxpayers are required to complete W-9 information regarding backup withholding. Backup withholding can apply to independent contractor relationships when a taxpayer does not have a properly certified TIN or has some previous problem with the IRS regarding properly reporting income. In the event backup withholding is required, a vendor may be required to withhold some percentage of income and submit it to the IRS.
You are required to sign the form, certifying that you have read the form and that all of the information you have provided is true and correct to the best of your knowledge. This is a legal document, so you should be absolutely certain that it is accurately completed when you sign it.You are required to sign the form, certifying that you have read the form and that all of the information you have provided is true and correct to the best of your knowledge. This is a legal document, so you should be absolutely certain that it is accurately completed when you sign it.
When the form is completed, you should return it to the company that requested it. This form contains your private identifying information, so you should deliver it by hand or some secure electronic method. Of course, never submit the sort of personal information found on Form W-9 to anyone other than a legitimate and known requestor.
You do not need to submit the form to anyone else, but you should maintain a copy for your accounting and tax records when reconciling the payments you receive from a vendor with the Form 1099-MISC after the end of the year.
All vendors and independent contractors should expect to complete a Form W-9 with every company they do substantial business with. If you work with multiple companies as an independent contractor, you should keep a copy of a completed and current Form W-9 on hand or on your hard drive for every new client you provide services or products for.