The choice to remain autonomous and maintain a flexible business schedule brings about much freedom and many restrictions simultaneously. Getting all the joys of self-employment works alongside duties on detailing relevant tax data and arranging documentation that may be needed when a freelancer regularly submits tax charges and tax revenue per annum.
Whether you are a freelancer, a self-employed specialist, or an independent entrepreneur, the W-9 form will be of great assistance to keep your tax reports in order. Also, this document is indispensable for the business to revise the information regarding their potential independent contractors.
Form W-9 is an inherent document that collects personal data, including the individual’s legal name, address, Social Security Number (SSN), and other relevant information to submit to tax-related services. In the United States, the document is recognized as the Request for Taxpayers Identification Number and Certification. The form is tailored by the Internal Revenue Service (IRS) and can be obtained at the official website. To reduce effort and fill out the PDF file, we encourage you to try our advanced editing software.
The form is utilized as a fundamental basis for creating the IRS form 1099-MISC needed for nonemployees (the business or the employer completes form 1099 MISC). Form W-9 demands annual renewal and adjustments. One shouldn’t serve this paperwork to the IRS as it is just an instrument of gathering an independent contractor’s personal data. Note that Form W-9 only reflects business relations between the contractor and the employer and not the amount of the contractor’s yearly earnings.
The primary purpose of the W-9 Form is to provide the contractor’s consent to serve their income tax, Social Security, and Health Care Services. The document is offered to every US-invited employee who should complete and return the form to the entity, business employer, or the entity’s HR division. It is advisable that the latter keep the document for a few years if the respected information is requested by the IRS or any other related institution.
The business uses the data introduced in Form W-9 to fill out Form 1099, filed to the IRS. The Internal Revenue Service collects this paperwork to understand the independent vendor’s (the freelancer’s) annual earnings and calculate the income tax.
Once the contractor (freelancer) appends their signature, they approve all data submitted and cannot be subject to backup withholding.
Backup Withholding is the procedure run by the IRS to state it obtains taxes on income from the entity’s invited workers. Individuals become subjects to backup withholding when they neglect to submit or certify their taxpayer identification number or fail to report any income and dividends. As a rule, backup withholding makes 24% of the individuals’ income, reserved by the company and directed to the IRS office. To avoid these measures, individuals, being self-employed, should fill out the W-9 certificate to confirm they are not subject to backup withholding.
There are certain cases when one is exempt from backup withholding. Unlike other commercial transactions, including rent, royalties, and other interest payments, real estate transactions executed in the US cannot be subject to backup withholding.
Whenever a person gets income that surpasses 600 USD annually from a client, they should report their earnings to the IRS regardless of their independent and self-employed status. It is a significant misconception to consider that freelancers do not pay taxes at all. In fact, the forms that an independent contractor renders can be more complicated than those a full-time employee fills out. Therefore, the IRS Form W-9 is essential for:
Autonomous proprietors and freelancers
Ensure to revise the status of your employment. Freelancers should complete Form W-9, while full-time workers use form W-4. Should your earnings be 600 USD and higher, complete the W-9 provided by the client to whom you deliver your services. The employer will use that data to file a 1099 Form to IRS. If your yearly income from this client is under 600 USD, you are exempt from filling out this form.
Entities hiring freelancers
If your contractor’s earnings exceed 600 USD, you need to provide this data to the IRS with the 1099 form. To complete the document, you require reliable information from the Form W-9.
Financial organizations and their clients
A financial organization might need the W-9 form to repay the person’s income from dividends and interest.
Being self-employed or a freelancer, an individual has to be sure they know their responsibilities and privileges. Make sure you are familiarized with relevant requirements and understand when the IRS W-9 Form is correct to be used. Clarify the purposes of filling out the W-9 Form if you are prompted to do so by a business entity or the employer.
Sometimes, completing the document is unnecessary, as the business (for example, a financial institution) does not require such information. As a rule, banks have inherent details of one’s taxpayer identification number (TIN) at their disposal. Ensure its dependability not to fall into a double-dealer’s hands. Make all possible efforts to guard your social security number, tax identification number, and other ID data from identity theft, scammers, and fraud.
Another legal reason not to fill out the W-9 form is being a foreign person. In this case, the individual should complete the Withholding of Tax on Nonresident Aliens and Foreign Entities form. Suppose a person becomes a residential alien (for example, a student participating in the scholarship program within the US). They have to provide certain attachments to the IRS W-9 Form to be exempt from the US tax charges on a particular income.
Form W-9 is usually used as a PDF containing the petition itself, the instructions, and the essential data regarding the procedure of submitting the document. Below is a list of relevant sections:
The W-9 paperwork also provides general and specific instructions and a list of related documents.
The Internal Revenue Service regulates the procedure and the W-9 revisions. The advanced information is offered on the IRS official website and contains relevant updates and guidance. Here are some regulations to know:
W-9 contains an acknowledgment that specialists share valid tax ID and their tax class, whether they are exempt from backup withholding or should take tax return responsibility.
W-9 can be challenging to fill out because not all sections may fit your particular case. We suggest you try out our software to generate a PDF and fill out the required information instantly. Follow this comprehensive guide to understand better how to fill out form W-9.
1. Indicate the Taxpayer’s Identity Details
The individual should provide the full legal name the same way it is spelled on their income tax return. It is compulsory to fill out this section whether you are an independent contractor or running a proprietorship.
2. Indicate the Taxpayer’s Business Title
This section is optional if your legal name (spelled in section one) is the same as the business name. However, should the spelling or the concept differ, define it in the suitable section. Suppose your name is Anna Baker. You should fill this information in the first section. Your business name is Anna Baker — leave the field blank. However, if your business name is, for example, Anna Baker and Friends Inc. — it is mandatory to fill out this section.
3. Specify the Tax Status
Follow the guidance of section three and submit your status regarding IRS classification. Select one option and check the appropriate field.
Single-member LLCs should select the first box. “Limited Liability Company” slot is appropriate for corporation and partnership statuses.
4. Complete the Exemptions Section
The Exemptions section is applied only to some types of entities. Being a sole proprietorship or an independent contractor, please, leave these areas blank. This field offers two choices. If you are exempt from backup withholding, enter a valid code in the first box. If you have a legal benefit not to proclaim the Foreign Account Tax Compliance Act, mark the second box.
5. Define Your Home Address
The petitioner should provide their physical address, including the street and apartment number. This information is needed to serve notifications and important mail delivery from the employer.
6. Write Down the Domiciliary Data
Enter the information regarding the city, your state of residence, and your ZIP code.
7. Specify the Requester’s Address
There is a slot requiring the requester’s (employer’s) address and legal name opposite the taxpayer’s residency information. The section is optional and can be left blank.
8. Enter Extra Account
If applicable, provide any extra account number at the employer’s request. If you don’t have any, skip this optional section.
The second and third segments are as follows:
“Part One” — Defining the TIN
The section is dedicated to the taxpayer ID and provides two options: for individuals, single-member LLC versus entities and business corporations.
“Part Two” — Certification
This part authenticates all the aforementioned information and proves your consent to the data submitted. Therefore, you should review the document again with scrutiny and append your signature if everything is correct. Note that you completely agree with every statement provided in the Certification Part.
Suppression of evidence and malicious falsehood can lead to prosecution and penalties, including fines and imprisonment. Form W-9 allows you to cross out the second statement if you are subject to backup withholding and have been notified about this fact.
Complete the W-9 IRS Form by placing the current calendar date and report the document to the requester. Remember that you don’t need to serve this paperwork to the IRS office.
Independent contractors and employers consent to respect each other and the IRS institution and provide correct and veritable information by filling out the form. There are several things to avoid; otherwise, the petitioner or the requester will be subject to penalties.
If the employer or business exceeds their authority and uses your tax ID number, breaching the laws, they can be prosecuted for criminal and civil offenses.
If the independent contractor fails to provide a relevant federal tax ID number, they will have to pay a penalty fine of 50 US Dollars. Unless the individual acts without fraudulent intent, they will not be subject to penalties.
Should contractors intentionally submit false data that affect backup withholding, they will be charged a 500 USD penalty fine.
Fraudulent intent to falsify the data may lead to a criminal offense punishment, including fines or arrest.
Both needed when a client hires service providers. W-9 is essential for a part-time specialist invited for a short period. Freelancers, independent contractors, single-member LLC, whose yearly income from the business is over 600 USD require completing the W-9 form. Full-time employed service providers and workers should fill out the W-4 form.
W-9 statement collects data about a taxpayer and doesn’t appear to be a payment report. There is no need to make this application to the IRS office. After executing the record, distribute it to the company or client. When you deal with W-9, you should collect reports to accommodate an Income Tax and SE Tax.
Yes, it is. A requester, that is, a person who requires a payee or payee’s agent to fill in the W-9 form may organize a system to submit the document electronically. This system must ensure that the person submitting the form is the one who is identified on it and provide the same information as the hard copy of the W-9. A payee, that is, the person who submits a taxpayer identification number should be ready to sign the form electronically to verify the identity, as well as to provide a paper Form W-9 if necessary. It’s also possible to use your variant of an electronic system for the W-9 submission as long as you provide the correct information and e-signature.