When the tax season approaches, you may be required to fill out a W9 tax form, at least, depending on your employment situation. Thus, it is highly advisable to know what a W9 is, what qualifies you to complete one, and how to fill it correctly.
A W9 is an IRS tax document in the form of a helpful guide, which helps independent contractors in completing their tax obligations for the calendar year. You can download a blank W9 form here, to get a picture of what we are talking about.
Businesses that seek services from independent contractors or freelancers don’t withhold any income tax, Medicare taxes, or Security taxes, as regular employers do. As such, it is up to individual contractors or freelancers to meet those IRS tax obligations. The government, however, still requires organizations that use independent contractors to submit a 1099-MISC form to match the contractors’ tax filings with their yearly tax income.
But generally speaking, W9 forms are used by independent contractors or freelancers, and not by full-time employees, to complete their tax forms. Unlike part-time and full-time employees, independent contractors don’t have taxes withheld for payments of services rendered to their clients.
For instance, a company could hire a freelance designer to build a new website for a fee amounting to $4, 500. When the work is done, and the freelancer’s invoice is submitted, that particular company pays him the full $4, 500 without any taxes taken out. See, it is up to the freelancer to pay his own taxes from the 4,500, usually every quarter. Each year, the sum of the freelancer’s professional earnings is recorded on the W9 form and submitted to the IRS.
Data provided on a W9 tax form comes from IRS form 1099, which outlines any income paid out to a person that otherwise would be listed on an IRS W-2 form.
The W9 form is used by businesses to record a freelancer or contractor’s information, but it’s not usually sent to the IRS. Instead, 1099 is what businesses and freelancers/contractors will submit to the IRS. Actually, the 1099 form records gross income for the entire tax year.
Freelancers, part-time employees, and Independent contractors responsible for their own tax returns are expected to fill in the W9 form. If you consider yourself fully employed and your employer tells you to fill the W9 form, you should confirm whether the organization views you as a temp or permanent replacement.
Employees working on a permanent basis are expected to fill in the W-4 form, not the W9. The only time one might be expected to fill the W9 form as a permanent employee is if you have gotten compensation other than the monthly wages. This could be in the form of store vouchers, gifts, or a cash incentive.
No, the W9 form is only used record information for freelancers and independent contractors, and usually, it not even seen by the IRS. Businesses do not deduct income tax from freelancers or independent contractors, and neither do they pay Social Security or Medicare on their behalf.
Full-time employees are not expected to fill in a W9 form because the company that has hired them should already have the employee’s information on file. At times, a dishonest employer or one that is financially struggling may tell you to fill the W9 form purely to save money. But at least by now, you know that a full-time employee fills out the W4 and not the W9.
The only other time an employer can request you to fill out the W9 form if you are a permanent employee is by mutual consent. Case in point: a situation where you have negotiated to work on your own schedule and take responsibility for personally filing your own tax returns.
The W-9 tax form is used to record the following info for a freelancer or independent contractor being hired.
Additionally, you need to specify on the W9 form if you are eligible for backup withholding. If you are, the employer who hires you is required to withhold income tax from your payment, usually at a flat rate of 24 percent for tax years 2018- 2025. The total amount deducted is sent to the IRS.
It is not just the independent contractor or freelancer who may be subject to a W9 form. Any income earned on real estate transactions, dividends paid out to shareholders, mortgage interest paid by an individual; for instance, need to be recorded on the W9 form.
Here is a brief list of typical candidates for a W9 tax form:
If you earn more than $600 from a client during the tax year, the W9 information will be needed to complete a 1099 form. A 1099 form reports gross income earned. Remember, though, it is always your job as a freelancer to set aside some money aside for your taxes. It’s ultimately your duty, to determine if you need a 1099 form and to ask for one, if necessary. When you earn $600 and below during the tax year from a client, 1099 won’t be necessary. That said; you must still complete your taxes.
If you have hired someone who has no previous experience as a freelancer, ensure that you explain the significance of returning the completed W9 form to you and not the IRS. It is understandable why someone with no experience would imagine the IRS should receive the form. That is why you should keep on reminding the freelancer to return the form to you.
If the freelancer earnings from you exceed $600 during the tax year, you should report their income using a 1099 form. This form is also available on the official IRS website. After downloading, fill it using the information provided in the W9 tax form. Submit one 1099 copy to the contractor and another to the IRS. The contractor needs the 1099 form so that they can complete their taxes.
Anyone who needs to file a W9 tax form will receive a blank form from a client before they assume any professional services. Completing a W9 form is simple, but it is good to get it right:
The IRS only needs you to sign the W9 form if you are completing it because of:
Also, a date and signature are required in part II to certify that the info you have submitted on the W9 is correct. And remember, because it has crucial identity information, ensure you only send it to institutions or people you know and trust.
The W4 and W9 forms may be completed via e signatures, and the IRS regulations around them are reasonable. Minimize printing, signing, and mailing your IRS documents by signing them electronically. Compliant with the Uniform Electronic Transactions Act (UETA) and the U.S. Electronic Signatures in Global and National Commerce Act (ESIGN), e-signs are legally binding and enforceable in any court of law. They guarantee stronger levels of authentication, and most importantly, have an audit trail attached to the signed documents.
To sign a W9 with most top electronic signature software, follow these steps:
All changes done on the W9 are saved automatically. Also, it is possible to download the signed W9 form for reference purposes.
Follow the following steps to improve your W9 filling experience:
Keep it safe – After filling your W9 out accurately, make sure you protect your identity from fraudsters. Always keep the form private, and never leave it in a public place or send it to somebody in an unsecured way. Tax documents fraud is all too real, and securing them should be your topmost priority.
Keep your W9 form up-to-date – if you change your business name, move houses, get married, or otherwise make any significant business-oriented changes to your life, ensure you update your W9 form.
Be accurate – The Internal Revenue Service is strict about the accuracy of W9 tax forms. If, for any reason, you submit a W9 with erroneous information, you make yourself prone to penalties and prosecution – or even imprisonment.
Yes, you can decline to fill out a W9 form, but only if you are unconvinced as to why a company has made the request. Think twice before filling out the W9 form if the business you are dealing with does not have a genuine reason to ask you to fill it out.
But again, as a freelancer, if you decline to fill the W9 form, your client is allowed to withhold taxes from your payment, usually at a rate of 24 percent. Like we mentioned earlier, U.S-based businesses are required by the IRS to request any freelancer earning $600 + during the tax year, to complete a W9. If the contractor or freelancer fails to comply, a fine can be imposed.
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