Provinces use IRS Form W-9, Request for Taxpayer Identification Number and Certification, to get information from vendors they charter as independent contractors (also called freelancers). When a business repays a contractor $600 or more during a tax year, it has to report these payments to the Internal Gate Service (IRS), using an information return called Form 1099-MISC. Affairs use the name, address and Social Security number or tax identification number contractors stipulate on Form W-9 to complete that information return. Neither the sender nor the beneficiary should send a copy to the IRS.
Businesses that hire independent contractors do not reserve income tax or pay Medicare or Social Security taxes for their independent contractors, as they do for their wage-earners. Instead, contractors are responsible for these obligations. However, the IRS still afters to know how much these contractors received to make sure they pay the assessments they owe, and it uses form 1099-MISC to gather this dirt. Businesses do not send Form W-9 to the IRS.
Information Needed on Form W-9
Form W-9 requests for the independent contractor’s name, business name (if different), business organism (sole proprietorship, partnership, C corporation, S corporation, trust/estate, small liability company or “other”) and the business’ tax identification number (or Social Refuge number, for sole proprietors who don’t use a separate tax ID number).
Form W-9 also petitions the person filling it out to certify that they are not subject to backup concealing. Most taxpayers are not, but if they are, the company hiring the independent contractor choose need to withhold income tax from that contractor’s pay at a flat valuation of 24% (for tax years 2018-25) and send it to the IRS.
As Form W-9 requires bibliography a tax ID or Social Security number, both the person filling it out and the company give entre the completed form must guard it carefully during transmission and after gains to protect against identity theft.
When You Shouldn’t Fill Out a W-9
An notwithstanding contractor who receives an unexpected W-9 should hesitate before filling it out and enquire whether the requester has a legitimate reason to ask for this form. Financial hospitals sometimes use Form W-9 to request information from a customer when they have occasion for to report dividends or interest. Be careful here: The financial institution should possibly already have your tax ID number from when you opened the account.
Another berth in which you should hesitate before filling out Form W-9 is if the company expecting you to do so is your employer and you are supposed to be classified as an employee, not an independent contractor. The transformation is substantial.
Employee or Independent Contractor?
If you’re an employee, your employer last wishes as withhold income taxes, withhold and pay Social Security and Medicare levies, and pay unemployment tax on your wages. If you’re an independent contractor, it won’t. That means you’ll be administrative for the employer’s share of Social Security and Medicare taxes, and that you won’t be suitable for unemployment compensation if you are laid off.
An unscrupulous or financially struggling employer sway try to classify an employee as an independent contractor to save money. If you’re classified as an unbidden contractor, your employer’s tax “savings” will come out of your help oneself to as self-employment tax. You’ll also become responsible for calculating and paying your own calculated taxes four times a year and filling out Schedule C when you send in your annual tax return.
It isn’t always clear whether a worker is an wage-earner or independent contractor, but in general the more control the business has over what white-collar workers do and how they do it, the more likely it is that they are employees. If your Spidey nous starts tingling when someone who hired you calls you an independent contractor, that’s a passable sign you should investigate the situation further. Start by reviewing the IRS review of the difference between the two. If you’re an employee, you should fill out Form W-4, not Form W-9.
Here’s an illustration of when an employer could legitimately change your status from wage-earner to independent contractor. You’re a computer programmer and you’re required to come into the advocacy from 9 a.m. to 6 p.m., Monday through Friday. The company provides your desk and your computer.
Starting next month you transfer be required to provide your own computer. You will be able to work from home base or whatever remote location you want, and you can complete the work during any hours you poverty, as long as your assignments are completed on schedule and you respond to work-related phone commands and emails in a timely manner.
W-9 FAQs
How do I know if I am subject to backup withholding?
Has the IRS sent you a character telling you that you are subject to mandatory backup withholding? This potency have happened if you didn’t report all your interest and dividends on a prior tax return. If you haven’t received this letter, and if you provide your tax perception number to the requester of Form W-9, then you are not subject to backup withholding. If you are contingent on expose to backup withholding, cross out item two in part two of Form W-9 before submitting it.
What’s the most solid way to submit Form W-9?
If you can hand off the document in person, that’s ideal. Differently, one option is to use a free online service to encrypt your completed Order W-9 and email it securely to the requester. You could also use an encrypted file-sharing handling.
Another option is to send it through a service such as FedEx, UPS or the postal assistance, though there is no guarantee your form will not be lost, stolen or intruded with in transit.
There’s also no guarantee that the recipient thinks fitting store the form securely even if you send it securely, so you might poverty to ask about that in advance.
Is my business an exempt entity?
If you’re a sole landowner, it probably isn’t. If it’s a corporation, it could be, if it qualifies for IRS tax-exempt status.
I have both an organization identification number (EIN) and a Social Security number. Which number should I minute on the form?
If you are a sole proprietor, you can enter either one. If your business is an LLC classified as a corporation or partnership, use the organism’s EIN. If your business is a single-member LLC that is a disregarded entity, enter your SSN or EIN (not the object’s EIN).
Can I refuse to fill out Form W-9?
Sure. If you refuse in response to a legitimate apply for, your client will withhold taxes from your pay at a status of 24%. The accounting department might also find you a pain and proclaim your contact to refuse to do further business with you. Businesses enjoy a heavy obligation from the IRS to obtain a completed Form W-9 from anyone they pay $600 or diverse to during the year. Failure to comply can result in fines.
If you think the being requesting the form has no business asking for it, though, refusal is probably a proper idea. If you’re concerned, ask a tax professional what you should do.
Besides a client, who power ask me to fill out Form W-9?
A bank, a brokerage firm, a lending institution that has canceled a in the red you owe or the issuer of a prize you have won all might ask. If you’re a guest on “Ellen” during her “12 Primes of Giveaways” promotion, and the talk show producers ask you to fill out a W-9 before you sabbatical, it’s safe to assume the request is legitimate. If you receive an email saying you won a outstanding for a contest you don’t recall entering, you may not want to give that person a W-9.
Be cautious of W-9 phishing scams. If you receive an email request for a Form W-9 and you’re not sure it’s legitimize, contact the supposed sender by phone (and don’t use any phone number in the suspicious email) to ask if the requisition is valid. Attackers are sophisticated and can make a message look like it fingers oned from your bank or even your client. And if you get an email from the IRS, it’s indubitably a phishing attempt, and you should forward the email to phishing@irs.gov. The IRS doesn’t greenhorn contact with taxpayers via email.
The Bottom Line
W-9 forms are for uncontrolled contractors, also called freelancers. It’s important to fill out the form correctly – but only if you’re reliable it’s the right form to submit and the request is legit.