What is a W-9 and what is it used for?

 

Form W-9, or Request for Taxpayer Identification Number and Certification, is filled out when a person or company makes payments to another person or company (e.g., independent contractors and freelancers). Most importantly, the person filling out the W-9 form is not employed by the company, but earns some type of income or payment from the company.

For example, when a business hires a contractor, the contractor fills out a Form W-9 before starting their job. The business then uses the completed Form W-9 to collect tax information on the contractor, such as their  tax identification number (TIN),   prepare  a Form 1099-NEC and report payments of $600 or more made to the contractor by sending a Form 1099-NEC to both the IRS and the contractor.

The W-9 form is not sent to the IRS, but is instead considered a simple information-collection form that helps companies and banks prepare their taxes and report their finances.

Form W-9 collects five types of information:

• Name
• Name of the business (if applicable)
• Address
• Taxpayer Identification Number or Social Security Number
• Type of business, such as sole proprietor, S-corp, C-corp, or other (if applicable)

Who is required to fill out a W-9?

A W-9 form is filled out by an individual, not by the bank or business that requests it. W-9 forms are most often filled out by:

• Contractors
• Freelancer
• Other self-employed individuals who receive more than $600 from a person or company without being an official employee

Less commonly, people  may need to fill out Form W-9 when earning  other types of income , including:

• Acquisition or abandonment of property
• Debt cancellation
• IRA Contributions
• dividends
• Various I
• mortgage interest
• Real estate transactions
• Mutual Funds and Stock Sales

Do I have to pay taxes if I fill out a W-9?

If you receive more than $600 in a calendar year from that company, then yes. However, simply filling out a W-9 does not require an individual to pay taxes. These payments are generally not subject to IRS withholding, which means it is the payee's responsibility to track their income and pay the necessary taxes.

Why is a W-9 necessary?

Businesses use W-9 forms to collect information from contractors or non-employees to whom they are paying. Most importantly, W-9s help businesses collect the contractor or non-employee's tax identification number or Social Security number. Businesses and banks use the information on W-9 forms to determine if a  federal tax deduction is required on the person's payment  and to help when filing taxes.

Form W-9 also certifies whether the contractor or gig worker  is subject to backup withholding  , which means the business must withhold income taxes for that individual and remit it to the IRS. Individuals subject to backup withholding will have already been notified by the IRS and will need to indicate their status on their W-9.

What is the difference between a W-9 and a 1099 form?

The W-9 form collects personal information from the contractor before the job begins. Although  there are many 1099 forms  , they are generally used to report income that  would not be included on a W-2 form . Businesses that pay at least $600 to contractors and other non-employees  must use Form 1099-NEC  to report these payments to the IRS. 

Companies are not required to file a W-9 with the IRS, but they are required to complete and file a 1099-NEC form for each contractor when filing taxes. Essentially, the W-9 collects the information and reports the 1099-NEC information.

Is a W-9 the same as a W-2?

No. W-9 forms are filled out by non-employee contractors or people receiving payments, while  W-2 forms  are filled out by employers for their employees. The information on the forms is the same, but a person would not fill out both forms for the same business.

How much tax do I owe on a W-9?

The W-9 form is not submitted to the IRS, but it provides information that businesses use to complete a 1099-NEC form of an individual's annual income. Payments earned by a contractor completing a W-9 form are not subject to IRS withholding, meaning it is the payer's responsibility to report the income and pay self-employment taxes, which are calculated   at a rate of 15.3 percent as of 2022 .

Can I refuse to fill out a W-9?

Yes. If an individual feels uncomfortable giving his or her personal and Social Security information to a company, he or she can refuse to fill out a W-9. However,  without a TIN, the business is required to withhold tax from the individual's pay  at a rate of 24 percent  ,   also known  as backup withholding .