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Form W-9 is a really simple IRS form with precisely one function. It lets you send your Tax Identification number (TIN)—which is your Employer Identification Number (EIN) or your Social Security number (SSN)—to another person, bank, or other financial institution. We believe everyone should be able to make financial decisions with confidence.
- And, if you hire independent contractors in your business you likely should ask for completed W-9 forms from these people.
- The W-4 is used by the employer to determine how much federal income tax should be withheld from the employee’s paycheck and reported to the IRS.
- Should you choose not to furnish a Form W-9 or if the information provided is incorrect, a 24% withholding tax will be taken from future payments you receive from your client.
- Ideally, you’ll deliver it in person to limit your exposure to identity theft, but this method often isn’t practical.
- See the instructions below for Step 8, Part II, for more on backup withholding.
If you complete Form W-9 as an individual, you don’t need to worry about filling out this section. Do you have additional questions about IRS Form W-9 or need help filing your return? Our tax pros speak the tricky language of taxes and are committed to helping you better understand your return. Two commonly used forms for tax purposes are Form W-9 and Form W-4. Though similar sounding, they have very different purposes, recipients, and uses. The information obtained on a W-9 form is most often used to create a version of Form 1099.
Backup withholding means that a payer, in this case, your company, needs to withhold tax from the payments you make to a contractor. Backup withholding is typically required when a person uses the wrong TIN or underreports certain types of payments. To be safe, some businesses will send out Form W-9 to every single one of their contractors que es w-9 form to fill out ahead of time, even if they don’t expect them to perform $600 of work for them. Some accountants will even suggest collecting a W-9 before issuing any payments at all to encourage people to file up-front. If you’re a contractor and you receive a Form W-9 from an individual or business who is not a client, don’t fill it out.
What Is a W-2 Form? How to Read It and When to Expect It
And, if you hire independent contractors in your business you likely should ask for completed W-9 forms from these people. If you are an independent contractor, you must report your name, provide your Social Security number, and verify whether you are exempt from backup withholding taxes. If the contractor is not exempt from backup withholding, the business must withhold income tax from their contractor’s pay at a rate of 28 percent and send it directly to the IRS. The business entity is required to report the name of their business, what type of business it is, and their tax identification number. If you are self-employed, this is your social security number.
Line 5 is for the street address, while Line 6 is for the city, state, and ZIP code. Individuals might also submit a W-9 after they’ve had a change of address. In that case, they should https://turbo-tax.org/ write “new” above Line 5 to indicate the change to the company. While individuals usually can’t claim an exemption from backup withholding, some types of corporations or entities can.
You might assume that the people you hire as independent contractors are all going to be sole proprietors. But some of them may have incorporated or formed single-member LLCs. If your business has any employees or operates as a corporation or partnership, it probably needs an EIN to do business and file with the IRS properly. If you need one, check out the IRS’s online application form for the EIN. The main difference between Form W-9 and Form W-4 is that Form W-9 is for independent contractors and other payments to people who are not employees, while Form W-4 is for more traditional employment relationships. In this section, you will provide your taxpayer identification number (TIN).
Though a lot of the information these forms collect is similar, they represent different types of business relationships. Notably, Form W-4 requests information used to calculate tax withholding. If you want to save money, avoid penalties, and prepare for a better financial future, a tax expert from Community Tax can help you every step of the way.
What If I’m Subject to Mandatory Backup Tax Withholding?
Forms 1098 and 1099 are also used to furnish mortgage interest payments, student loan payments, real estate transaction proceeds, and discharge of certain types of debt. For these forms, the opposing party may request Form W-9 to ensure they have appropriate information on file. The IRS says you should apply for your number and write “applied for” in the space for the TIN.
Understanding Form W-9
Instead, your company keeps it on file and uses it to fill out any informational tax forms, such as Form 1099-NEC. If your company hires people on a 1099 basis, these individuals will complete a form W-9 before they begin doing any work. The form provides your company with the individual’s taxpayer information, so you can submit the details of your payments to the Internal Revenue Service (IRS). Learn more about what a W-9 form is, what it’s used for, and how to have independent contractors fill one out. Another purpose of Form W-9 is to help the payee avoid backup withholding.
The agency uses the information provided on Form 1099 to make sure contractors or entities report all of the income they earned during a particular tax year. When individuals complete a W-4, they tell a company how much to withhold from their paychecks. For example, an employee with two jobs might request that a company withhold more, while a person who has many deductions might request a company to withhold less. If that’s the case, they need to put the exemption code on line 4. Individuals and sole proprietors are usually not exempt from backup withholding and shouldn’t put any codes in this section.
A W-4 will request information such as the taxpayer filing status (i.e. is the taxpayer married?). Now, if you read the fine print in the W-9 instructions carefully, it seems to indicate that most people aren’t required to sign this form at all. You’re generally only required to sign it if the IRS has notified you that you previously provided an incorrect TIN. Technicalities aside, however, the person who asked you to fill out Form W-9 will probably consider it incomplete or invalid if you haven’t signed it. Now, some sole proprietorships also have EINs, but the IRS prefers that sole proprietors use their SSNs on Form W-9.
As an independent contractor, vendor, freelancer or other individual receiving nonemployee compensation, you typically do not work for the person or business as an employee. If you don’t work as an employee, you’ll typically have your earnings reported on a Form 1099-NEC and will need to prepare a W-9. Therefore, before starting any work with a person or business, be sure to ask for a Form W-9 if they haven’t already provided you with one. Failing to do so could make you required to pay withholding taxes on the money that you pay them.
A W-9 form is a formal written request for information only and is used solely for the purpose of confirming a person’s taxpayer identification number (TIN). For most individuals, the TIN will be their Social Security Number (SSN). Taxpayers may be subject to backup withholding when failing to supply a correct taxpayer identification number (TIN) or if the IRS believes that they owe them money and they aren’t able to collect it any other way. Further, individuals or businesses can become subject to backup withholding for failing to report interest, dividend or patronage dividend income. The primary difference between a W-9 tax form and a W-4 tax form is who they are for.
¿Qué es el Formulario W-9 del IRS?
If there’s a mistake on your tax return, notify the IRS immediately and amend your return using Form 1040X to ensure you don’t qualify for backup tax withholding. You should be wary when handling a W-9 form, whether you’re a contractor or employer. Form W-9 contains sensitive tax information, including tax identification numbers and Social Security numbers, so it’s important to keep it safe from identity theft. If you’re a contractor, take extra precaution when you receive a W-9 by identifying the source.
