If you’re an independent contractor, you have a different set of tax obligations from a full- or part-time employee. When you enter into a contact with a company but aren’t on the payroll, you should receive a Form W-9. This allows you to report your earnings and ensure you don’t land in hot water with the Internal Revenue Service.
What is Form W-9?
Form W-9 is otherwise known as the Request for Taxpayer Identification Number and Certification. As the name suggests, the primary purpose of the form is to present your taxpayer information including your individual or business name, federal tax classification, and TIN.
The form itself is fairly straightforward. You fill in personal information including your name as shown on your income tax return, the name of your business if applicable, and your address. You must also identify your federal tax classification, which includes options such as individual or sole proprietor, partnership, and limited liability company.
Beneath this section you’ll find two parts: taxpayer identification number and certification. For the former, fill in your Social Security number or your employee identification number. For the latter, you must sign and date to certify four points: that the information is correct, that you are not subject to backup withholding, that you are a United States citizen or resident alien, and that any Foreign Account Tax Compliance Act codes entered are correct.
In all likelihood, if you don’t know your backup withholding status, you’re exempt. According to the IRS, backup withholding is when 24 percent of an individual’s income is withheld and paid to the IRS. If this applies to you, you will have received notification from the IRS.
In addition to the portion you fill out, Form W-9 includes five additional pages detailing the completion process and going over exemptions and unique circumstances. Read these pages thoroughly to ensure the accuracy of the information provided.
Who fills out Form W-9?
According to the IRS, a Form W-9 is intended for independent contractors and subcontractors who receive $600 or more in compensation from a business during a tax year. The information from the form is used to process an information return, or a Form 1099.
Among the information return types listed by the IRS are Form 1099-MISC, which covers a range of incomes and gross proceeds, and Form 1099-NEC, which specifically covers nonemployee compensation beginning in tax year 2020. In addition to independent contract work, you will also need to fill out a Form W-9 if you claimed dividends on stocks from a mutual fund, earned interest, earned proceeds from a real estate transaction, or had debt canceled.
Unlike a Form W-4, which is given to full- and part-time employees, a Form W-9 does not obligate a company to withhold federal tax. As an independent contractor, you are responsible for calculating your federal tax obligations on earned income.
When you complete your Form W-9, do not send it directly to the IRS. Instead, you’ll send the form to the requestee, who will then transmit the form to the IRS. Thomas Izquierdo of Taxfyle advises you to deliver the form to the requestee either by hand, via U.S. mail, or through an encrypted email attachment.
If you are uncertain about the information requested on a Form W-9, or whether you need to fill one out in the first place, a tax professional will be able to provide all the answers you need.