What is a W-9 Form and Why You Need To Fill It Out
Form W 9 is an IRS form used by businesses to request independent contractors and freelance workers to provide their name, address, and tax ID number.
If you look at Form W-9 on the IRS website, you’ll see that its title is Request for Taxpayer Identification Number and Certification. So, that’s its function. It’s a tax form that is required to be submitted to the requester. Unlike many other tax forms, you don’t need to send it to the IRS.
Let’s do a deep dive into Form W 9 to understand the role it plays and its importance.
What is a W-9 Form?
We mentioned that W-9 Forms are sent by businesses to independent contractors and freelance workers to obtain their Tax Identification Numbers (TIN). However, they can also be used for other purposes. Here are the situations where you may be required to complete and provide a W-9 Form:
- You expect a client to pay you more than $600 in the tax year.
- You’re paying interest on your mortgage
- You’re contributing money into your IRA account.
Remember that you should usually comply with a request to furnish Form W 9 when asked. But every request you get may not be genuine. Identity thieves could send you a Form W-9 request with the intention of obtaining your TIN and other particulars. They could use this information to steal your identity and file fraudulent tax returns and receive tax refunds. So next time someone asks you for a Form W-9, make sure it’s a genuine request.
Fraud isn’t all that you have to watch out for.
Bear in mind that your employer doesn’t need a W-9 from you. Employees are required to complete Form W-4. If your employer provides you with a Form W 9, it could be a mistake. Or it could also mean that you aren’t an employee and your status is that of an independent contractor. If this is the case, the responsibility for paying taxes to the IRS is yours.
A bank, financial institution, or brokerage firm could also ask you to fill out Form W-9. This could be because you’ve earned interest and the financial institution requires your Taxpayer Identification Number and other details. If you win a prize in cash or even in the form of goods, you may be asked to fill in IRS Form W-9.
Now let’s take a minute to see the information that needs to be provided in Form W 9.
- Name: This should appear exactly as it does on your income tax return.
- Your business name: Provide this only if it’s different from your name on your tax return.
- Address and Zip code.
- Taxpayer Identification Number: This is your Social Security Number (SSN) or Employer Identification Number (EIN).
You’ll also be asked to certify that you’re not subject to backup withholding.
What’s that?
Backup withholding applies to people who don’t have a valid taxpayer ID. It’s also applicable if you don’t provide your taxpayer ID or submit one that is invalid. In these situations, you could be subject to backup withholding at a flat 24 percent rate. In simple language, this means the payer will hold back 24% of the payment and send it to the IRS.
Why do you need to fill a W-9 Form?
One of the primary objectives of Form W-9 is to allow freelancers and independent contractors to inform their clients that they are not subject to backup withholding.
There’s also another reason that Form W 9 is important.
A little background is necessary here. Businesses that hire independent contractors aren’t required to withhold income taxes. The responsibility for paying these taxes lies with the independent contractors.
However, any business that’s paying a contractor or freelancer does have one crucial duty. They need to file Form 1099-NEC (NEC stands for Nonemployee Compensation) with the IRS and provide it to the payee.
These are the specific conditions under which Form 1099-NEC is to be filed: (All the conditions must be met.)
- The payment should be made to a non-employee.
- The total amount paid should exceed $600 in the tax year.
- The payee could be an individual, a partnership, or a corporation.
- The payment should be for a business-related service. Personal payments aren’t reportable.
When a freelancer or independent contractor files a tax return, the IRS matches the income reported on the return with the 1099 form it has received from the payer. For this purpose, it’s essential that the details on the 1099-NEC are correct. This is the reason that Form W-9 is a crucial document. It ensures that the business using the contractor’s services uses the right information when preparing Form 1099-NEC.
Form W-9 may not be needed in some circumstances
You should know that Form W-9 isn’t necessary for all non-employee payments. Here are some of the specific instances where it isn’t required:
- If a business buys merchandise, there’s usually no need for a W-9.
- If a publicly-traded company is providing a business with services, a Form W-9 isn’t required. That’s because it’s possible to obtain the EIN from publicly available information.
The bottom line
Form W-9 is an IRS tax form that freelancers and independent contractors are asked to fill by their clients. A person paying interest on her mortgage or contributing to her IRA account could also be asked to complete the form. The purpose of the W-9 is to provide the person requesting the information with details of the individual’s Taxpayer Identification Number and some other essential particulars.
