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Whether you’re a freelancer or a small business owner, running a business means navigating complicated paperwork. Accurate and timely tax compliance is critical to smooth operations. Independent contractors and businesses paying non-employee compensation should understand the reporting requirements.
IRS Form W-9 is an informational form for recipients of numerous types of income, including non-employee wages. Payers and recipients of non-wage compensation should understand the Form W-9 requirements.
This article will explain the purpose of Form W-9 and help you determine whether you need to file the form. We’ll also include a step-by-step guide for filling out your Form W-9.
What Is the W-9 Tax Form?
IRS Form W-9, Request for Taxpayer Identification Number and Certification, is an information return. Form W-9 provides information about U.S. persons and resident aliens who receive non-employee payments. Common recipients include freelancers and independent contractors. Form W-9 lists the payee’s name, entity type, federal tax classification, address, and tax identification number.
Payers must request a Form W-9 from each payee and submit completed forms to the Internal Revenue Service (IRS).
What Is the Purpose of a W-9?
The W-9 filing requirement helps the IRS track non-wage compensation earners and their taxable income. The IRS can trace taxpayer identification numbers from Form W-9 to 1099 forms and federal income tax returns. The agency can use the reports to assess tax return accuracy.
We’ll discuss the 1099 filing requirements in further detail later.
Form W-9 vs Form W-2 or Form W-4
Employers must file numerous tax documents. Accurate tax compliance requires understanding the differences between each form.
IRS Form W-9 reports information about recipients of non-employee payments. In contrast, IRS Form W-2, Wage and Tax Statement, and IRS Form W-4, Employee’s Withholding Certificate, represent employment tax forms. Businesses that hire employees and withhold employee income taxes must file Form W-2 and Form W-4 for each employee:
Professional CPAs can help you determine which tax forms your business should file.
Who Should File Form W-9?
Individuals and businesses paying non-employee compensation must report the payments to the IRS. The payers must file Form W-9 for each recipient.
Payers must also file 1099 forms to report the payments to the IRS. Form W-9 reports information about each payee, and Form 1099 reports the payment amounts.
Generally, each payer must request a Form W-9 from each 1099 recipient. The IRS website at IRS.gov provides instructions for Form W-9 requesters.
Numerous types of payments create a Form 1099 filing requirement. Consider the following list of common 1099 forms and associated income types. If you receive the following reportable payments, you should submit a Form W-9 to each business paying you.
Only U.S. companies and individuals should submit Form W-9. Non-U.S. citizens may have different compliance requirements.
Small businesses must follow complex rules for payments to independent contractors. Whether you’re an employer or freelancer, online bookkeeping and accounting services can help you save time and money. Professional CPAs track due dates and filing requirements so you can stay compliant while growing your business.
How to Fill out Your IRS Form W-9
If you receive reportable payments, follow our step-by-step guide to complete Form W-9.
W-9 Recipient Information
The topmost portion of Form W-9 collects the recipient’s information.
Need extra help? Tax professionals offer personalized guidance.
Form W-9 Part I. Taxpayer Identification Number (TIN)
Your TIN represents one of the following identifiers:
Form W-9 Part II. Certification
Most individuals and entities should sign Form W-9 Part II.
However, some recipients do not need to sign and may skip the certification. According to the Form W-9 instructions, recipients of certain types of income may opt out of certification. For example, recipients of mortgage interest, cancellation of debt, or contributions to individual retirement arrangements (IRAs) do not need to sign.
Review the instructions to determine whether you should sign Part II. Professional tax preparers can support you with filling out Form W-9.
Where and When to File Your W-9 Tax Form
Return your completed Form W-9 to the requestor. If you provide freelance services to a business, your client should tell you where to send the form.
The Form W-9 instructions lack a due date, but recipients must honor deadlines from requestors. Businesses need correct TINs early each tax year so they can meet the Form 1099 deadline.
Additionally, business owners must collect and submit W-9 tax forms to the IRS. If your business files numerous W-9 and 1099 forms, consider outsourcing your tax compliance to professional CPAs.
What Happens If You Don’t File Form W-9?
The IRS imposes penalties for failing to provide accurate taxpayer information. If you forget to submit your W-9 or accidentally give an incorrect TIN, you could receive fines of $50-$500 for each mistake. Taxpayers who purposely enter inaccurate information could suffer criminal fines and penalties.
Additionally, the IRS can subject taxpayers to backup withholding for inaccurate reporting.
What Is Backup Withholding?
If the IRS subjects a taxpayer to backup withholding, the payer must withhold 24% of all payments to the taxpayer. The payer submits backup withholding directly to the IRS.
The IRS could impose backup withholding on taxpayers who fail to do the following:
The IRS exempts real estate transaction payments from backup withholding but subjects most other non-wage payments, including rent, non-employee compensation, and tax-exempt interest.
Avoid backup withholding by partnering with income tax professionals on your tax form preparation.
Get Personalized Help with Your Small Business Tax Forms
Small businesses must comply with numerous reporting requirements and filing deadlines. Self-employed professionals deal with complex tax rules. Consider outsourcing your tax responsibilities and reclaim your time to develop your business.
1-800Accountant supports business owners and freelancers with year-round tax compliance and advisory services.
Avoid interrupting your business growth with tedious paperwork or paying penalties on a form you overlooked. 1-800Accountant can help you maximize your deductions and lower your tax bill. Schedule a free consultation with 1-800Accountant to learn how you can benefit from professional bookkeeping, accounting, and tax services.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.