Businesses use Form W-9, Request for Taxpayer Identification Number and Certification, to gather information about independent contractors and other vendors. The independent contractor or vendor must fill out the W-9 and submit it to the business that pays them.
Why Am I Being Asked to Complete a Form W-9?
If you do consulting or gig work for a business without being on its payroll, you will likely be asked to complete a W-9.
When a business pays more than $600 to a single taxpayer during the year, it must submit an informational return to the Internal Revenue (IRS) to disclose the payments. The business needs pertinent information from you to report the payments accurately, such as your name, address, social security number (SSN) or employer identification number (EIN), and your federal tax classification.
When Do I Need to Request a Form W-9?
As a small business owner, it is important to collect a W-9 for any person or entity you pay more than $600 in a tax year. You will use the information provided to you on the W-9 to complete Form 1099-NEC, Nonemployee Compensation, or Form 1099-MISC, Miscellaneous Income.
As of 2020, Form 1099-NEC is used to report nonemployee compensation for independent contractors or freelancers. In prior years, this information was reported on Form 1099-MISC. The current Form 1099-MISC is used to report other miscellaneous payments such as:
- Rents and royalties
- Medical and health care payments
- Crop insurance proceeds
- Fishing boat proceeds
What Information is on Form W-9?
The first line is your name as shown on your tax return. If you are an individual and report your income from the contract work on Schedule C, Profit or Loss from Business, this line is straightforward. If you are a sole proprietor or single-member limited liability company (LLC), you should enter your own name on line 1 as well. Partnerships, multiple-member LLCs, C corporations, and S corporations should enter the entity's name as shown on the entity's tax return.
The second line is for your business's name, if any. If you are a sole proprietor or single-member LLC, you should enter your business name or “doing business as" name (DBA) on line 2. A partnership, multiple-member LLC, C corporation, or S corporation should enter any business name, trade name, or DBA on line 2.
The third box is where you need to check the federal tax classification of the person or entity listed in line 1. Only select one option here. If you check the LLC option, you will also need to explain the tax classification you have chosen for your LLC. The options are:
- Individual / sole proprietor or single-member LLC
- C corporation
- S corporation
- Trust / estate
If you are exempt from backup withholding, you can enter a code in line 4 that explains your exemption.
Line 5 is for your address. Enter your number, street, and apartment or suite number. Line 6 is your city, state, and zip code. This is where your 1099-NEC or 1099-MISC will be mailed. You will need to add this information to your tax return when you file your taxes.
What is the Difference Between a W-9 and a W-4?
Independent contractors fill out a Form W-9. However, if you are an employee of the business, you should fill out Form W-4, Employee's Withholding Certificate, instead. Businesses withhold federal and state income taxes, Social Security taxes, and Medicare taxes for their employees and pay the taxes on their behalf.
As an independent contractor, you are responsible for tracking your income and paying estimated taxes on a quarterly basis. If you are an employee, you will receive a Form W-2, Wage and Tax Statement from your employer at tax time. If you are an independent contractor, you will receive Form 1099-NEC from the business that pays you.