Updated for tax year 2023.
If you’re a freelancer or career independent contractor, you’re probably familiar with Form W-9. As far as tax paperwork goes, it’s one of the better ones because it generally means you’ve won a new client!
The form gives you an easy way to submit all your vital information to the client so you can start working, and they can start paying you. What’s not to like about that?
At a glance:
Form W-9 provides information for issuing Form 1099-NEC at the end of the year.
Differentiate between W-9 and W-4 based on your working relationship with the company; W-9 is for independent contractors, while W-4 is for employees.
Update your W-9 whenever your information changes for active clients.
What is a W- 9 tax form? What is the purpose and use of the W-9 Form?
Form W-9, Request for Taxpayer Identification Number and Certification, is primarily used to provide the information your client needs to issue you a Form 1099-NEC at the end of the year. Form 1099-NEC documents non-employee compensation. It includes information like that found on a Form W-2, Wage and Tax Statement.
You may also need to provide a W-9 if you use payment provider sites like eBay or Venmo. Sports book sites could also need you to fill out a Form W-9 based on how much money you win betting on sports.
A company or individual may also request a W-9 from you for real estate transactions, mortgage interest payments, acquisition or abandonment of secured property, cancellation of debt, or your IRA contributions. Those are less common, however.
Usually, the party requesting a W-9 tax form will provide a blank one for you to fill out. You can also easily download the form from the IRS website. Only the party that requested it needs a copy. The IRS does not.
The W-9 asks for several pieces of information: your name, business name (if applicable), address, taxpayer identification number, and the type of business entity you operate. It’s pretty painless as far as tax paperwork goes.
Form W-9 vs. Form W-4
The business you work for must classify you as an independent contractor or an employee. If you’re an independent contractor, the company should request a Form W-9 from you. If you are an employee, they should ask you to complete Form W-4 so they can withhold payroll taxes.
Under a W-9, the company will not withhold any taxes for you. You are responsible for ensuring the right amount of taxes is paid to the IRS. And when it comes to Social Security and Medicare taxes, you must pay both the employer’s and employee’s share.
It can be a little confusing to differentiate whether you should fill out Form W-9 or Form W-4 based on the actual work performed. A better gauge is the circumstances around the working relationship. Generally, the more control an employer exerts over what a worker does and how they do it, the more likely that person is an employee and not an independent contractor.
Another quick way that may help determine which form to use is whether the business aspects of the relationship are controlled by the payer. That includes how the worker is paid, whether expenses are reimbursed, which party provides tools, supplies, etc. If the employer controls those details, the worker is more likely an employee. If employee benefits are offered, like pension plans, paid vacation, and matching 401(k) contributions, the worker is probably an employee.
Sometimes an employer might try to save money by classifying an employee as an independent contractor. By doing so, they aren’t on the hook for paying their share of Social Security and Medicare taxes on the employee’s income. But, if that happens to you, your employer’s “savings” will come out of your pocket. That’s why it’s important to address the situation swiftly if it arises.
Common questions about Form W-9
When should you update or send out a new W-9?
You must send a new W-9 to active customers or clients whenever your information (name, business name, address, or Social Security number) changes.
What should you do if you receive a request for a W-9 tax form from an unexpected source?
By law, you are only obligated to provide a W-9 to parties that intend to pay you interest, dividends, non-employee compensation, or any other type of reportable income. If someone unexpectedly asks for a W-9, ask them why they need it. If their answer doesn’t align with any valid reason, you legally don’t have to provide one.
What if I don’t submit a Form W-9?
If a business appropriately requests a W-9 and you do not submit one, you’ll likely be subject to backup withholding up to 24% on your payments.
Watch out for red flags
Although it’s a basic and widely used tax document, that doesn’t mean you should take any less care with handling Form W-9 than you would handle other tax and financial documents. Here are a few things to look out for:
The person or business asking you for a W-9 seems shady. In general, you should be careful giving out sensitive information like your name, address, and Social Security number. Make sure you’re comfortable with the person or organization asking for a W-9 before you supply that information.
Use only secure channels to send a W-9 tax form. If you choose to email Form W-9, make sure to send it as an encrypted attachment. You can also use another secure delivery method, such as hand delivery or regular mail.
The purpose of a W-9 request is unclear. If you’re not sure why the requestor wants a Form W-9 from you, ask them what tax documents they’ll use it to prepare for you.
You thought you were getting a Form W-4. If you’re starting a new job and the employer wants a W-9 instead of a W-4, clarify whether you’re an employee or an independent contractor. It’s against the law for them to require you to work like an employee but pay you like a contractor.
Special Form W-9 information for limited liability companies
If the tax status of your limited liability company(LLC) is separate from you — such as a partnership, C-corporation, or S-corporation — list the LLC name, its federal employer identification number, and check the appropriate tax classification box on the W-9 tax form. Do not check the “limited liability company” box.
If the LLC is owned by another LLC,check the “limited liability company” box. Also, indicate the tax classification of the parent LLC.
If the LLC is owned by a single person, list the name of the owner on the “name” line and the name of the LLC on the “business name” line. The Internal Revenue Service (IRS) would rather have the owner’s Social Security number instead of the LLC’s federal employer identification number.
This article is for informational purposes only and not legal or financial advice.
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