A W-9 form is a tax document that is used in the United States of America that provides information about the Tax and payroll of an Independent Contractor. Commonly the form is used by banks, financial institutes, and employers to generate other 1099-MISC forms for Independent Contractors, Freelancers, Sole Proprietors, or Self-employed persons. Know more about the IRS W-9 form, ways to fill it, and the guidelines set by the IRS to follow.
What is The W-9 Form?
The W-9 form is an Internal Revenue Service (IRS) tax form that gathers information from a person to a company, banks, or financial institutes in the USA. Independent contractors, self-employed persons, freelancers, or sole proprietors are the persons who furnish the W-9 form. The IRS W-9 form is also formerly known as the Request for Taxpayer Identification Number and Certification form. The forms further identify a person’s address and Tax Identification Number (TIN). This form is only applicable to the residents of the USA. Form W-9 is produced chiefly for the purpose of employment or other income-generating purposes.
IRS W-9 Form Key Points:
- The W-9 tax form is the official documentation that verifies the name, address, and TIN of employed personnel.
- One can use the information from the W-9 form to fill out the 1099s form, which tracks income and tax details
- Strict privacy regulations prevent disclosure of the information gathered while furnishing the W-9 form for any other purposes.
- Independent contractors must provide a W-9 form to the company they are working for, even if they are not employed.
- If a person doesn’t furnish a W-9 tax form, the client must withhold a tax rate of 24% from him/her.
|What are W9 Forms used for?
Employers, banks, and financial institutions use the IRS W-9 Tax form. These forms provide detailed information on Tax Identification Numbers (TIN), Employee Identification Numbers (EIN), and SSNs (Social Security Numbers). There are a few instances where people think W8 to be similar, however, both the W8 vs. W9 Tax forms are different.
The Need to Furnish a W-9 Form For Any Individual
Typically, the W-9 form is for any individual who is getting paid by another party and is not an employee of that party and needs to file a W-9 form. The form solely aims to confirm a person’s Tax Identification Number (TIN). Know more in detail about W-9 vs. 1099 difference.
There can be a number of scenarios where a person must furnish a W-9 form and send it to the concerned person.
- If the person works as a freelancer, contractor, or consultant and gets 600k a year from a single client, that client will require the completed W-9 form from the person to produce the 1099-MISC form.
- The bank or the financial institution where the person invests will require a completed W-9 form to complete the other type of 1099 forms.
- If an individual forgives or cancels a debt owed to them. They would require to file the form 1099C with the IRS. To complete the process, the debtor must provide W-9 Form to the individual.
- Banks or Financial Institutions sometimes require the W-9 form while opening a new account.
Step-by-Step Guide to Furnish a Form W-9
There are nine pieces of information that are required to fill out the IRS W-9 form An individual must be aware of this information before filing out the form. However, all this information must be accurate and complete, or it can lead to a penalty for the individual.
The Form W-9 is very simple, easy, and straightforward to complete. All the pages of the W-9 Form are available on the IRS website. Some pages may have additional information as required by the IRS.
- Line 1, Name: Here, the individual must provide the name as in the tax return files. Also, the individual can provide the name of the owner or a sole proprietor.
- Line 2, Other Business Name: This field is only applicable if the individual owns his/her business name, DBA name, trade name, or disregarded entity name.
- Line 3, Federal Tax Classification: Here, the individual must select only one option from a corporation, sole proprietor, individual, single-member, LLC, limited liability company, partnership, or trust/estate that is accurate.
- Line 4, Exemptions: The individual must select if the individual is exempt from backup withholding or Foreign Account Tax Compliance Act (FATCA).
- Line 5 and Line 6, Address: Here, the individual must provide the original address that mentions the city, state, and zip code.
- Line 7, Account Number: This section is for the additional information the individual can provide, such as different account numbers or financial information the requester asks for.
- Part I, Tax Identification Number (TIN): The sole purpose of this form is for the TIN that the individual holds. This form also includes information on Social Security Number (SSN) or Employee Identification Number (EIN).
If the individual selects Sole Proprietorship in the Line 3 Section, the IRS suggests to use SSN rather than EIN, to simplify the process for filling 1099s. If the individual or the new business does not have an EIN, then they must fill out in the TIN as “applied for” to avoid backup withholding.
|What is Backup Withholding?
Backup Withholding is a tax withholding method by which IRS from an individual or a business. This method is applicable when the individual or the business doesn’t provide the correct TIN, or there are any discrepancies with the W-9 tax form.
- Part II, Certification: Under this, the individual must provide proper certification for the following three points.
- The certification for the right tax payment, along with proper proof. The individual also should provide if there is a backup holding certificate under his/her name
- Proper certification to support that the individual is a resident of the US.
- This is not mandatory, but the individual can provide any certification related to FATCA.
Common mistakes to avoid when filling out a W-9 Form
Every year in the US, there are several cases leading to penalties for inaccuracy and discrepancies in the W-9 form. The Internal Revenue Service (IRS) set the guidelines for accurately filing W-9 forms to omit any discrepancies. However, if an individual fails to provide any accurate information in the W-9 form, this will lead to penalties. As, the information provided helps in furnishing other 1099s forms. So, providing any inaccurate information will lead to several issues in other forms.
What Happens Once An Individual Submits The W-9 Form?
An individual submits the W-9 tax form only to requestors such as employers, banks, and financial institutions. The requestor then uses the W-9 form to generate the 1099-MISC forms, tax details, and payments. Once the receipt is complete, the individual gets one copy of it, and the other will go to the IRS. Further, IRS uses it to track income and ensures that the individual fills income accurately.
How Multiplier Can Simplify The Processes
Managing Independent Contractors in the US can be cumbersome with keeping track of all the forms. It is challenging if you’re dealing with multiple independent contractors, freelancers, or sole proprietorships. Multiplier provides simplified processes to onboard, pay, and manage contractors and freelancers across the globe in a few simple clicks.
With entities in more than 150 countries, you can have access to generate compliant employment contracts and onboard independent contractors. Attract more independent contractors or freelancers with benefits such as bonuses and insurance.
Frequently Asked Questions:
Q. Who needs to fill out a W-9 Form?
An Individual who is working with an organization as an Independent Contractor, Freelancer, Sole Proprietorship, or Self-Employed Person.
Q. What is the purpose of a W-9 Form?
The purpose of the W-9 form is to collect information mainly on Tax Identification Number (TIN), Employee Identification Number (EIN), and Social Security Number (SSN).
Q. What information do I need to provide on a W-9 Form?
There are a set of nine information pieces that you need to provide. Please check the “Step-by-Step Guide to Furnish a Form W-9” section to know in detail.
Q. Is a W-9 Form the same as a W-4 Form?
No, W4 and W9 are used for two different purposes. The former is used to request the TIN of an individual, while the latter is used to calculate the amount of federal income tax from an individual’s paycheck.