Who is Required to Fill Out a W9?Pat Fontana
There are over 800 federal tax forms. As an individual taxpayer or as a business owner, it can be confusing as to which you need to complete each year. One of your questions about these tax forms may be, who is required to fill out a W9?
What is the W9?
The form is used whenever financial compensation is provided to an individual who is not an employee or a business that is considered a contractor. This includes cash prizes awarded in a contest, contributions to a non-profit organization in the form of grants, and compensation for work completed by a contracting individual or business.
Although there are many reasons for using the W9, the tax form captures some basic information from an individual or company, including:
- The individual’s or company’s name
- Physical and mailing addresses
- Type of business entity
- Tax identification number, which could be an Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN), or a Social Security Number (SSN).
The person completing the W9 will also need to state whether they are subject to backup withholding, in which case the organization providing the financial compensation would have to withhold income tax from the payment, at a flat rate of 24%.
For the Business Owner
If you are a business owner who has contracted with an individual or another company to do work for you, then you may need to have them fill out a W9. If you are using the services of an independent contractor or freelancer, you’ll need to have them complete the form and then keep it in your files for reference at tax time.
Although you will not withhold taxes from your payment to the contractor, with the exception previously noted, you will need to use the W9 to complete a form that you will submit to the Internal Revenue Service (IRS), the 1099. There are also many versions of the 1099, depending on which type of compensation you are providing.
A 1099 does not need to be completed if the total compensation for the tax year is less than $600 for work by a contractor, money provided for awards and prizes, or other non-employee income.
For the Individual Taxpayer
If you are the individual, you will need to complete a W9 for an organization when they anticipate paying you more than $600 in income, cash prizes, contributions made to an individual retirement account (IRA), or certain real estate transactions. In return, you will receive from the organization the appropriate 1099 to be filed at tax time.
The IRS distinguishes between the purposes of the various 1099 forms, depending on the reason for the compensation you received. Examples of 1099s include:
- Form 1099-MISC (various types of income, prizes, awards, or gross proceeds)
- Form 1099-INT (interest earned or paid)
- Form 1099-DIV (dividends, including those from stocks or mutual funds)
- Form 1099-B (stock or mutual fund sales and certain other transactions by brokers)
- Form 1099-S (proceeds from real estate transactions)
- Form 1099-K (merchant card and third party network transactions))
- Form 1099-C (canceled debt)
- Form 1099-A (acquisition or abandonment of secured property)
Difference Between W9 and W2
Employees of a business will complete a form W2, usually on the first day of work. It is important to distinguish the difference between who is required to fill out a W9 and who completes a W2. Essentially, the W9 is completed by an independent contractor or freelancer who is an individual or business that performs services for a company but is not bound by the same requirements as a full-time employee.
An independent contractor will pay their own taxes where an employee’s tax payments will be withheld from their paycheck. A freelancer will also not be entitled to health insurance or a retirement account provided by the contracting business. In addition, a contractor will be able to set their own hours, choose their own approach to the work, and have the option to refuse work.
CONTACT CLEAR VIEW BUSINESS SOLUTIONS FOR HELP WITH TAX PLANNING
Just as there are many tax forms, there are also penalties for not completing the appropriate forms on the federal and state level. The experts at Clear View know what you need to do and when you need to do it. We can also help ensure that you are maximizing your available credits and deductions and minimizing your tax payment.
We work with you at tax time and throughout the year to help you be better prepared to make sound financial decisions and to plan for your success. Learn more about how we can help you and your business by contacting Clear View Business Solutions to speak to our team about our services. Give us a call at (520) 544-0177.