When people start at a new job they will have to fill out several forms. However, for those people who are self-employed, the requisite forms look a little bit different. Remember, you have to report all income to the IRS when you're self-employed. Additionally, the businesses that pay you for your services will also have to have a record of how much they paid you and then report those earnings to the IRS come tax time. IRS Form W9 is officially called: Request for Taxpayer Identification Number and Certification. An employer hiring a freelance worker for example will use this W9 form to obtain a person's basic information such as name and address as well as their Taxpayer ID Number. In this article, we look closer at the various components of a W9 form.
Understanding Form W9
When you work for a company, the employer will withhold the requisite taxes from your pay. This is to cover not only federal taxes but if relevant, state taxes as well as Medicare and Social Security tax. However, if you are self-employed and engaged in freelance work, for example, you are responsible for withholding your taxes to this end. The W9 form thereby acts as a sort of agreement between the employer and contractor being hired in which the contractor is agreeing to withhold the appropriate taxes from the payment received.
Once the end of the year rolls around, the hiring company will then use the information found on your W9 and fill out a 1099-MISC. The 1099 form shows what was paid to you by that particular employer. The W9 form can be found on the IRS's website. Usually, before beginning work for a company, the employer will give you a blank W9 to fill out and submit to them.
Who Fills Out a W9?
These forms are generally for those self-employed individuals engaged in either some form of freelance work or consulting work for instance. If you will be paid more than $600 by a company within one year and you are not considered an employee, you will likely receive a W9 to fill out.
Businesses will use W9 forms to stay organized in terms of any third party workers they do hire on throughout the year. The W9 form that you complete for a given employer goes back to the employer—not the IRS. And you will fill out a new W9 form for every employer that you work for; many freelance workers will often have to fill out multiple forms during the year as they tend to work for a few different companies/employers. A W9 reads as follows:
You will of course include your name—be sure the name you supply matches that found on your tax returns. If you go by a business name or DBA you will also supply this information on the W9. You also need to choose your business entity. Most who fill out a W9 will check individual proprietors. There are cases though where LLCs and even some corporations will have to fill out a W9 given that they've been contracted by another company for work.
As far as supplying your address, you want to be sure that this is the address where you wish to have the tax information and returns sent. Most will not need to fill out any account numbers as indicated on the W9 form.
As far as your taxpayer identification number, you will either supply your EIN if you have one or if not, your social security number. For many individual proprietors, they will just submit a social security number. LLCs, partnerships, and corporations will use an EIN here. For resident aliens, they will use the individual taxpayer identification number issued by the IRS.
W4 versus W9
Sometimes there is confusion surrounding these two forms. If you are hired on as a full-time employee, the company that hired you will have you fill out a W4 form. Requiring much the same information as a W9, the W4 enables your employer to determine what to withhold from your paycheck. A W9 form will not ask any questions regarding withholding as the freelance worker is responsible to pay their taxes based upon income earned.
When Does 1099 Come into Play?
1099 details how much money you made in that year working for a given employer. The employer gathers the information taken from the W9 form to correctly complete the requisite 1099. There are a variety of different 1099 forms that can be used depending on the industry, earnings, and nature of work performed. The more common one is used for independent contractors and freelancers. There are also though 1099s for pension contributions and real estate earnings, to name a couple.
For this article, 1099 goes hand in hand with the W9 issued to self-employed workers being hired to work for a business as something other than an actual employee of that business. You will receive the 1099-MISC form in January and it will show all that you earned working for that company during the previous year. Upon filing your taxes, you will attach all relevant 1099 forms received for that tax year.
If you do a great deal of independent contracting, or if that is all you do, then definitely expect to be filling out at least one (if not multiple/) W9 forms. This again serves as the agreement that you will pay any taxes on income earned on your own and they are not responsible for withholding these taxes.
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