A W-9 form is an Internal Revenue Service tax form that shows that the taxpayer is not subject to backup withholding, and is charged with paying his or her own taxes. The W-9 form is a necessary guide in completing a contractor’s tax obligations for the calendar year, either with the help of a tax accountant or by the contractor.
Generally, businesses that use independent contractors don’t withhold any income taxes, Social Security taxes, or Medicare taxes, as do regular employers – it is up to the individual contractor to meet those IRS tax obligations. The law will, however, mandate companies who use contractors to submit a 1099-MISC tax form to match independent contractors’ tax filings with their annual tax income.
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Who is the W-9 Form Meant for?
W-9 forms are meant for independent contractors, and not for full-time employees. Unlike full-time and part-time employees, independent contractors don’t have taxes deducted for business services provided to clients – usually corporations, small-to-midsize companies, non-profits and other business-oriented organizations. All the data presented on a W-9 form comes from IRS tax form 1099, which lists any income paid out to an individual that otherwise would be recorded on an IRS W-2 tax form.
This W-9 form is meant for self-employed workers like freelancers, independent contractors and consultants. If you have earned over $600 in a tax year without being hired as an employee, you are mandated by law to fill this form.
If your employer sends you a W-9 instead of a W-4, the company has likely classified you as an independent contractor. You should confirm with the company that this is the case. Knowing your status can help you plan your tax return.
The W-9 form is for businesses to keep track of their external workforce. It simply means you don’t send your W-9 form to the IRS. Rather, you send it to your supervisor or the company’s human resources department. If you performed multiple jobs for multiple companies, you could fill out multiple W-9 forms in the same year.
You will also have to submit new W-9 forms any time you change your name, Business Name, address or tax ID number. Most of the time, a company or financial institution will send you a blank W-9 form to complete before you begin business with them. If you need to issue the form, you can download a W-9 from the IRS website.
Note that you can refuse a request to fill out a W-9 but only if you are suspicious as to why a business has made the request. Always be careful of filling out the W-9 if the business does not have a legitimate reason to ask you to fill it out. For instance, if you are a full – time employee, you’re not required to fill out a W-9. It is only required of independent contractors, freelancers and possibly part-time employees.
Also be hesitant if your bank requests you to fill in a W-9. They ought to have that information on record and may be asking for it merely to report on dividends and interest paid to its customers. However, if you refuse to fill in the W-9, your client is mandated to withhold taxes from your payment at a rate of 24 percent.
The W-9 is completed on paper or electronically. If the business requesting the W-9 is doing it through an electronic filing system, you need to make sure that a hard copy can also be produced if the IRS calls for it. An electronic signature is required for the electronic form.
Steps to Fill Out a W9 Form for a Business or LLC
Form W-9 is one of the easiest IRS forms to complete, but if tax forms seem daunting to you, follow the guide below. The business that hires you should fill in its name and employer identification number. You will then fill out the form line by line.
Line 1 – Name
This will be your full name and it is expected to match the name on your individual tax return.
Line 2 – Business name
If you have a business name, trade name, DBA name or disregarded entity name, fill it in here. If you do not have a business, you can leave this line blank.
Line 3 – Federal tax classification
This section defines how you, the independent contractor, is classified when it comes to federal taxes. If your limited liability company (LLC) is its own separate tax entity, such as a partnership, a C corporation, or an S corporation, report the name of the LLC and its federal employer identification number.
Check the appropriate tax classification box at line 3, indicating whether you’re a partnership, C corporation, or S corporation. Do not check the limited liability company box. This sounds counterintuitive, but it is what the IRS wants.
If the LLC is owned by another LLC, you would then check the limited liability company box. You must also indicate the tax classification of the parent LLC. If the LLC is owned by a single member, indicate the tax classification of the owner.
If the LLC is owned by a single member who is a person the IRS says that you must indicate the name of the owner on the “name” line and the name of the LLC on the “business name line.” The IRS prefers that you report the owner’s Social Security number instead of the LLC’s federal employer identification number in this case.
Line 4 – Exemptions
Note that you do not need to fill in this section as an individual. Only certain businesses or entities with any reason for exemption need to fill out these spaces. But if this applies to you, you will need to provide a number or letter code that indicates the reason.
However, if your entity is exempt from backup withholding, you will fill in the first line with your code. This should apply to most entities. However, if your business is not, the company who hired your services will need to withhold income tax from your pay at a flat rate of 24 percent and send it to the IRS. This is known as backup withholding.
Additionally, if you are exempt from a reporting required by the Foreign Account Tax Compliance Act (FACTA), you will fill in the second line. The latter only applies if you hold your accounts outside the United States. If you maintain your account in the U.S., you can leave the second line blank or write “N/A.” If you’re unsure about your exemptions, Page 3 of the form outlines situations that would make you exempt.
Lines 5 – Address, city, state, and ZIP code
Provide your street address, city, state and zip code. What if your home address is different from your business address? Which address should you provide on form W-9? Use the address that you will use on your tax return. In this optional step, you can also choose to provide the requester’s name and address. You might want to fill out this box to keep a record of whom you provided your tax identification number.
Line 7 – Account number(s)
Another optional line is where you can fill in any account numbers your employer may need. Most individuals can leave this blank.
Part I – Taxpayer Identification Number (TIN)
Note that you have two options in this section. You can enter either your Social Security number (SSN) or your employer identification number (EIN). Typically, you provide your SSN if you file as an individual or single-member LLC. Use your EIN if you file as a multi-member LLC classified as a corporation or partnership.
If you are a resident alien and you are not eligible for a SSN, you should use your IRS individual taxpayer identification number (ITIN). Again, you may want to check with your tax advisor or contact the IRS directly to double check your information. Note that Providing an incorrect TIN can cause issues with your payments or tax return. It can also lead to future backup withholding.
Part II – Certification
You are expected to attest to the truthfulness of all of your information before you can sign form W-9. Intentionally lying on a tax form could mean you will have to pay a fine or go to jail; the IRS doesn’t mess around.
A W-9 form is a personal document and should be treated as such. So, if you are unsure, it is best to speak to a tax consultant for advice. There are a variety of W-9 scams that many people fall victim to; where you receive an email request to fill in the W-9 and that information is used by unscrupulous individuals.
Note that the IRS does not initiate contact with taxpayers via email. Never reply to an email or telephone call requesting you fill a W-9. A business should either ask you to fill out a paper copy or will assist you with accessing the electronic filing system that they are using.