If a situation arises where independent contractors or freelancers are asked for a piece of information for verification purposes, then financial institutions and clients often rely on the Form W-9.
Filling form W-9 is actually a straightforward way to submit all crucial information like name, address, and most importantly Taxpayer Identification Number (TIN) which is either your Employee Identification Number (EIN) or Social Security Number (SSN). And cannot be ignored the fact that Form W-9 is pretty less painless as compared to the perplexing taxpayer paperwork.
It is just a brief. Know in detail about form W-9, what is it, who needs to fill it, what is its purpose, and more.
What is a W-9 form?
W-9 is an official form that provides taxpayer information to the business/client/entity that requested it. The primary function of the form is to provide all the necessary information to your client which will be required to issue Form 1099-MISC (used to report the income of taxpayers who are non-employees like independent contractors, freelancers, etc.) at the end of the year.
It is to let the Internal Revenue Service (IRS) know who has carried out the work for that particular client and how much they are getting paid. Form W-9 is also officially known as ‘Request for Taxpayer Identification and Certification’.
Who needs to fill the W-9 form?
If you are an independent contractor, independent consultant, freelancer, self-employed individual, part-time employee and are planning to get paid more than US $600 by any particular business or client within the tax year, will need to fill the Form W-9. The person who hires you for work will request you to fill the form so that they can send you Form 1099-MISC that is necessary when you report your earned money to the IRS.
Sometimes the self-employed will also need to fill the Form W-9 for opening a new account in any bank.
Another scenario is when someone cancels or forgets the due you owe them then they will be sending you the Form W-9 which they will later require to submit Form 1099-MISC with the IRS.
Sometimes, even tenants are requested to fill Form W-9 by their real estate agent or owners just for the sake of recording information.
Remember – Anybody else than your client, bank, or financial institution, asks to fill and submit Form W-9, think twice or do a proper check as it can be a fraudulent act.
What is the information recorded in Form W-9
For independent contractors, consultants, freelancers, Form W-9 is helpful for recording the following information:
- Business name if they have
- Freelancer’s or independent employee’s name
- Complete address
- Taxpayer Identification Number (TIN) that can either be Employee Identification Number (EIN) or Social Security Number (SSN)
- Business entity type. For example – sole proprietorship, partnership, limited liability company, trust or estate, or any other business type
Reasons to fill W-9 form
Business-freelance agreement – As already mentioned earlier, a business that needs to record payment above the US $600 may need to fill out Form 1099-MISC and for that purpose, the business requires details of the person with whom the business is carried out. This is when Form W-9 comes into the picture (for acquiring freelancer details).
Agreement between financial institutions and customers – As a facility to record customer details, most financial institutions often use Form W-9.
Agreement between real estate – In rare cases, again as a facility to record important information, real estate requests tenants to fill Form W-9.
For backup withholding exemption – A freelancer or an independent contractor can mention on the W-9 form that they are not subject to backup withholding. This will ensure that they receive full payment from the business with any tax deductions.
What is actually backup withholding?
If the IRS notifies a contractor or freelancer that they are subject to mandatory backup withholding, then the business which is paying you will withhold an income tax of flat 24% and pay it to the IRS. This often happens when the independent service provider fails to declare all the dividends and interest received in that particular tax year.
If you are not subject to backup withholding, do not forget to mention it on the W-9 form.
When not to send a W-9 form to someone?
Remember, the W-9 form is something where you fill all the crucial information related to you. If your SSN or EIN and personal information reach the hand of some fraudulent person or scammers, then it could be really dangerous. So be aware of whom you are sharing your personal information with.
If any business or individual apart from your client ask for the details by sending a W-9 form, avoid giving. If you are a little doubtful, you can cross-question them or directly talk to a tax professional. A business will require a W-9 form only if they have to submit some kind of IRS form like Form 1099-MISC.
If you are a full-time employee, you certainly don’t need to fill out any W-9 form as the company will already have your details.
Some frequently asked questions related to Form W-9
It is absolutely okay if you are not willing to submit your personal information. If you are suspicious about the business, go ahead and ask a valid reason why you need to fill out the form. If you are convinced then only fill the form. Only if your income from a particular business is above $600, you will be required to fill the form.
Usually, the business or the financial institution will send the form to you. It is their responsibility as they require the details. However, you can download the form from the IRS website.
There is no deadline as such. However, it is expected to fill the form and send it as soon as you receive it. But note, you are subject to pay a good amount as a penalty, if you fill out the wrong information (purposely or mistakenly) and send it to the concerned entity.
You can use Employee Identification Number (EIN) or Social Security Number (SSN) as an identification number while filling out the W-9 form.
Never ever reply to any mail or telephone call that requests you to fill out the W-9 form as it could be a phishing scam. It is always better to take the advice of your tax consultant before providing any personal details to any business or individual.
So with all this information, you now know everything about the W-9 form, isn’t it?