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Form W-9 or Request for Taxpayer Identification Number and Certification document is an Internal Revenue Service (IRS) form for self-employed workers, such as freelancers, independent contractors, and consultants. Businesses use it to gain personal and financial information on self-employed workers they will hire.
Form W-9 asks for identifying information, such as name, mailing address, and taxpayer ID and serves as an agreement that independent contractors need to exercise responsibility in withholding taxes from their income. While employers are responsible for withholding a portion of their full-time employees’ income taxes, they are not obligated to do the same for independent contractors.
Businesses utilize the form if they will compensate an independent contractor more than $600.00 a year; nevertheless, the form may still be issued when the amount falls below the said compensation threshold.
Companies use the information gathered to prepare Form 1099-MISC to report to the IRS the amount of compensation paid to the hired workers. Form 1099-MISC is a legal form a business in the United States uses to report amounts paid to a non-corporate U.S.-resident independent contractor for services.
If you are a self-employed worker, don’t send your Form W-9directly to the IRS; you should submit it to your supervisor or the human resources department of the company you are working for as an independent contractor or freelancer. If you did multiple jobs for multiple companies, fill out a Form W-9 for each company. Often, a company will send you a blank Form W-9 to complete before formally doing business. You may download the form from the official website of the IRS.
Aside from being an independent service provider, there are other situations that require a person to fill out FormW-9, including:
- certain real estate transactions;
- payment of mortgage interest;
- payment of student loan interest;
- cancellation of debt; and
- earning of interest from a bank.
Financial institutions, perhaps including your bank, use Form W9 to gather financial information from customers to report interest and dividends. They may ask for a filled-out FormW-9 when a customer opens an account. Moreover, foreign financial institutions require customers to complete Form W-9 to abide by the Foreign Account Tax Compliance Act (FATCA) of 2010 reporting requirements. The FATCA is a tax law in the U.S. that obliges U.S. citizens to report to the IRS any financial account they own outside the U.S.
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Form W-9 is not intimidating to complete compared to other U.S. legal forms, as it is straightforward and short. Excluding the instructions section, it is not even a page-long form.
In most cases, the business or financial institution is responsible for providing you a blank Form W-9, though you may download a free copy of the document from the official IRS website. You will need to finish the form by providing all the required information before you undertake any professional and business services.
As simple as it is, you must accurately answer Form W-9 to avoid any inconvenience.
Use your full legal name. This should match the name on your individual tax return.
Use this line when you have a business name, trade name, doing-business-as name, or a disregarded entity name. Otherwise, you can leave this portion empty.
- Line 3: Federal Tax Classification
Indicate your tax status according to the IRS classification by checking the appropriate box.
Use this section only if you are exempt from backup withholding and/or FATCA reporting. If this is applicable to you, provide a number or a letter code that explains your exemption.
Your employer will use the information you will provide in these lines to mail your information returns. Provide your number, street, and apartment or suite number in Line 5 and your city, state, and ZIP code in Line 6.
This line is where you can provide any account numbers your employer may find useful. You may leave this optional line if you prefer to.
- Part I: Taxpayer Identification Number (TIN)
If you fill out the form as an individual or single-member LLC, provide your Social Security Number (SSN). For a corporation or partnership, the Employer Identification Number (EIN) is required. In case you are a sole proprietor, you may provide both your SSN and EIN.
Use this section to sign and date the form, confirming that all the data you have provided are true and accurate. Before signing, review your information and ensure that you have followed the instructions correctly.
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What are some tips when filing Form W-9?
Form W-9 is a basic and simple tax form that you can fill out in minutes. While it is an easy-to-complete, standard legal document, you must exercise diligence and distinguish red flags to avoid legal predicaments.
- Keep your information safe
Tax form fraud is prevalent; thus, when filing your Form W-9, your primary responsibility is to secure the form to protect your identity, avoiding identity theft and fraud. A completed Form W-9 contains sensitive information, including name, address, and SSN. To ensure that fraudsters will not get ahold of your personal information, you must not carelessly leave your completed form in a public place or send it using unsecured methods. Utilize a reliable means of sending legal documents, such as via hand delivery, mail, or an encrypted email.
- Know the contact person or company
Before filling out Form W-9, you must know who is requesting, the reason behind the request, and how your information will be used. Beware of potential phishing scams for any request made via email. Scammers are experts in disguising themselves as professionals requesting individuals to fill out Form W-9 for business purposes. Be cautious and verify the request before completing and sending back the form to avoid becoming a victim of identity theft or tax fraud.
If you are doubtful whether the request is legitimate or not, it is advisable to speak to a tax consultant for advice. As a rule of thumb, never reply to an email requesting you to fill out Form W-9. Also, take note that the IRS does not initiate contact with taxpayers via email. Thus, if you receive an email from a government agency requesting your information using Form W-9, it is probably a phishing scam. A legitimate business will either require you to fill out a paper copy or help you access the electronic filing system they are utilizing.
An individual or company can only request you to fill out Form W-9 if they need to file an information return on you. If there is no legal reason behind the request, you may decline. While you can refuse to complete the form if you are suspicious as to why a business has made the request, a legitimate employer is obliged to withhold taxes from your payment at a rate of 24%.
- Answer accurately
Avoid penalties by answering Form W-9 as truthfully and accurately as possible. Mistakes on tax forms can be costly; therefore, review your information before submitting Form W-9. Do not attempt to falsify any information, as this would result in prosecution, penalties, and imprisonment.
Check your provided information for typographical errors particularly in your legal name or the name of your business and SSN. Make sure that your provided address is correct, otherwise, you will not receive your information returns later.
- Keep the form up to date
You must provide your client with a new Form W-9 if you relocated to a new address, changed your legal or business name, got married, or made or underwent any significant personal or business-related changes.
Who needs to use Form W-9?
Professionals who file and manage tax-related information and transactions independently need to use Form W-9.
- Independent contractors.As professionals contracted to perform work or provide services to a business as a non-employee, independent contractors are by far the most common users of Form W-9. Aside from regularly completing the form, they also manage their own Social Security and health insurance taxes. While they do not have the same benefits that regular employees receive, such as relocation assistance, health plans, and retirement benefit plans to name a few, the best upside to being an independent contractor is perhaps having the freedom to set deadlines and work guidelines.
- Freelancers.Similar to independent contractors, freelancers provide services to a business as a non-employee. The significant difference that independent contractors and freelancers have is the way they handle clients. While the former will most likely work with a particular client until a project is complete, the latter will usually be working with multiple clients concurrently.
- Limited Liability Companies (LLC).Limited Liability Companies need the filled-out Form W-9 from any independent contractors it utilized to complete the IRS Form 1099. While one of the major advantages of an LLC is pass-through taxation, it needs to file IRS Form 1099 to assess the tax its members owe.
What is a W-9 employee?
Generally, W-9 employees are independent contractors and sole-proprietors who file Form W-9, Request for Taxpayer Identification Number and Certification. They have self-employment income and receive Form 1099, instead of Form W-2, Wage and Tax Statement, at the end of the tax year.
A sole proprietor is an individual who owns a business and has no business partners, while an independent contractor contracts to perform services for one or more clients.
What are the types of Form 1099 that independent contractors receive?
Form 1099 is an information return used by taxpayers to report to the Internal Revenue Service (IRS) the different types of income they receive for a year outside their regular salary. Here are the types of Form 1099:
- Form 1099-INT — Form 1099-INT, Interest Income, is used to report interest payments made in the course of a trade or business, including federal, state, and local government agencies and activities deemed nonprofit.
- Form 1099-DIV — Form 1099-DIV, Dividends and Distributions, is used by banks and other financial institutions to report dividends and other distributions to the IRS and taxpayers.
- Form 1099-MISC — Form 1099-MISC, Miscellaneous Income, is used to report certain types of miscellaneous compensation.
- Form 1099-B — Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, is used by brokerages and barter exchanges to record customer gains and losses during a tax year.
- Form 1099-S — Form 1099-S, Proceeds from Real Estate Transactions, is used to report the sale and exchange of real estate.
- Form 1099-K — Form 1099-K, Payment Card and Third Party Network Transactions, is used to report certain payment transactions to improve voluntary tax compliance. A taxpayer may receive Form 1099-K if he or she received payments from payment card transactions and in settlement of third-party payment network transactions of above $20,000 gross payments and above 200 transactions.
- Form 1099-C — Form 1099-C, Cancellation of Debt, is used to report forgiven debts of $600 or more.
- Form 1099-A — Form 1099-A, Acquisition or Abandonment of Secured Property, is used when you lend money to a borrower, and in full or partial satisfaction of the debt, you acquire an interest in the borrower's property.
How much taxes will I pay on Form W-9?
Form W-9 is used to report your Taxpayer Identification Number (TIN), such as your Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), or Adoption Taxpayer Identification Number (ATIN) to your employer. If you do not furnish any of them, you are subject to backup withholding. Your wages, payment for services, commissions, prizes, awards, or compensation will have a 24% deduction.
Backup withholding is a special tax levied on payments other than interest, dividends, and patronage dividends if a freelancer or independent contractor fails to provide a correct Taxpayer Identification Number. The backup withholding requires you to pay 24% of your earnings for any IRS tax owed or when requested by the IRS.
Can I refuse to fill out Form W-9?
No, you cannot refuse to fill out Form W-9 as the Internal Revenue Service requires you to give your correct Taxpayer Identification Number to the organization or professional you are providing your service to. If you refuse to fill out Form W-9, your employer will have to withhold tax on your income. You may also be penalized $50 for every failure to provide your Taxpayer Identification Number.
However, be mindful in filling out Form W-9. You have the right to refuse to do so if you are suspicious about the requestor and the reason for the request.
What is the difference between Form W-2 and Form W-9?
Form W-2 and Form W-9 are IRS forms with different purposes.
While Form W-2 is appropriate for employees, Form W-9 is for freelancers and independent contractors.
Employers use Form W-2 to report the wages paid to employees and the taxes withheld from them. It requires information about an employee’s salary, hours worked, withholding allowance, and other deductions.
Form W-9, on the other hand, is primarily used to request a contractor’s Taxpayer Identification Number so employers can report a reportable amount paid to their contractors. It does not require any information about the type of income received or financial status.
Who is exempt from providing Form W-9?
According to the Internal Revenue Service, the following are payees who are exempt from providing Form W-9:
- An organization exempt from tax under Section 501(a), any IRA, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2)
- The United States or any of its agencies or instrumentalities
- A state, the District of Columbia, a U.S. commonwealth or possession, or any of their political subdivisions, agencies, or instrumentalities
- A foreign government or any of its political subdivisions, agencies, or instrumentalities
- A corporation
- A dealer in securities or commodities required to register in the United States, the District of Columbia, or a U.S. commonwealth or possession
- A futures commission merchant registered with the Commodity Futures Trading Commission
- A real estate investment trust
- An entity registered at all times during the tax year under the Investment Company Act of 1940
- A common trust fund operated by a bank under section 584(a)
- A financial institution
- A middleman known in the investment community as a nominee or custodian
- A trust exempt from tax under section 664 or described in section 4947
How much tax do you pay on $10,000?
Tax rates depend on your income level. As of 2020, the tax rate for $10,000 income is 10%. Therefore, you will pay a tax of $1,000.
In addition, if your income is $10,000 and you are subject to backup withholding, your employer will deduct 24% of your income. To compute the amount to be withheld, multiply $10,000 by 0.24. You will be deducted $2,800.
What does the cancellation of debt do to your taxes?
Some canceled or forgiven debts are considered by the Internal Revenue Service as income. If you received Form 1099-C, you must pay tax on your canceled debts unless you qualify for an exemption. Refer to Box 6 of your Form 1099-C to determine the reason for receiving such a form.
You are not required to pay tax on canceled debts if you are insolvent. To be insolvent means you cannot pay what you owe as you have more debts than assets. If your bank canceled your debts due to insolvency, you have to file an Insolvency Worksheet.
How much money can you have in your bank account without being taxed?
The Bank Secrecy Act requires you to report any cash or other assets that have been deposited in your account if the amount added is reported to be over $10,000. It is to avoid money laundering or anti-terrorism funding requirements. You may file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
If you have less than $10,000, you or your bank institution do not need to report it to the Internal Revenue Service.
Do I have to report income less than $100?
No. You do not have to report any income that is less than $100.
You will need to file a tax return if your gross income is more than $100, and you are required to fill out Form W-9.
Additionally, an individual does not have to report wages of less than $600 unless backup withholding applies.
Do I have to pay taxes on my savings account?
No, the money in your savings account is not taxable. However, the interest you earn from your savings account is taxable as ordinary income.
The tax rate may be 10% or 39.6%. You will receive Form 1099-INT from your financial institution if you earned more than $10 in interest during the tax year. If you earned less than $10, you will not receive Form 1099-INT. However, you are still required to report the interest to the Internal Revenue Service and pay taxes due.
What is backup withholding?
Backup withholding is a method of collecting income tax from payees who do not provide their correct Taxpayer Identification Number. This withholding can apply to anyone that does not complete Form W-9 correctly by the end of the payment period.
The best way to avoid backup withholding or paying taxes on interest earned in savings accounts is to be sure that you always provide your correct Social Security Number, Individual Taxpayer Identification Number, or Adoption Taxpayer Identification Number when completing Form W-9.
What if I provided an incorrect TIN?
If you provided an incorrect Taxpayer Identification Number (TIN) on your Form W-9, backup withholding will apply to any future payments made to you until the correct information is submitted. You will be subject to a civil penalty of $500 or other criminal charges if you intentionally provided fake TIN or statements on your Form W-9.
You can avoid backup withholding or other penalties by providing your correct information as soon as possible after receiving a notice from the payer about an incorrect Taxpayer Identification Number.
If I'm exempt from backup withholding, do I still need to complete Form W-9?
Yes. Completing Form W-9 will ensure that you are not subject to tax withholding on any future payments. It must be filled out before the payment is made or by the time the payment is due, if for a property. Filing Form W-9 may help you avoid erroneous backup withholding.
You need to complete Form W-9 if you receive other types of payments, including payments made in settlement of payment card or third-party network transactions, even if you are not subject to backup withholding.
Is there any way that I can avoid paying the penalties?
Taxpayers who have reasonable cause for failing to supply their correct Taxpayer Identification Number (TIN) will not be penalized for this failure. Here are three reasons that may qualify as reasonable:
- The TIN you provided was not correct. However, you tried to provide it on time.
- You received incorrect advice from the Internal Revenue Service or your primary preparer.
- Circumstances beyond your control resulted in failing to provide the correct TIN.
If the reason for not providing is deemed reasonable, then backup withholding applies to any future payments that are made until you provide the correct information. In such a case, there will be no criminal penalties, only a $50-penalty per occurrence.
Why is my bank asking me Form W-9?
Your bank is required to report interest that you earn from your savings account to the Internal Revenue Service. To do it accurately, your bank will need your completed Form W-9. If you do not furnish your Form W-9, your bank is required to withhold tax at the rate of 24%.
Your bank will also ask for your correct Taxpayer Identification Number so that they can report any interest or dividends earned on savings accounts correctly.
If you have already been subject to withholding and it is not corrected, criminal penalties may apply.
What is Form W-9 from a landlord?
A landlord requires you to fill out Form W-9 to ensure that he or she can withhold tax from your rental payments if necessary. For instance, taxes may need to be withheld if you receive income, such as rental income and personal services.
If you do not complete Form W-9 and your landlord makes a payment that is subject to backup withholding, your landlord will be charged for the amount.
How do I make sure that I am not subject to backup withholding?
To make sure you are not subject to backup withholding, furnish Form W-9 to your employer when requested. If you refuse to do so, your employer may deduct 24% of the amount he or she pays you.
You must submit Form W-9 on time or within a certain time frame after it has been issued.
What happens if you don't file Form W-9?
If you are an individual contractor and do not supply your correct name and Taxpayer Identification Number (TIN), backup withholding rates will apply to any future payments made by the contracting organization. If this information has already been submitted to the Internal Revenue Service (IRS) but is incorrect, criminal charges may apply.
Employers are required to file Form W-9 with the IRS to report the name, address, and TIN of each individual or sole proprietor they pay at least $600 in rents, services, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds or cash paid as part of a direct sales transaction. If they fail to do so, they will be charged a penalty on the amount of tax that should have been withheld.
The IRS grants employers three attempts to obtain Form W-9 from an individual contractor or payee. If the information is still incorrect after the maximum attempts, backup withholding will apply to the payee's income, or the employer may be penalized or pay for the amount.
To avoid such penalties, employers must have documentation of the attempts as evidence for the IRS.
Do you need Form W-9 if you are paid through a credit card?
If your employer requires you to complete Form W-9, you must do so whether you are paid in cash or through a credit card.
In addition, you should always file Form W-9 if:
- You are an individual and not a sole proprietor or you are a Schedule C (Form 1040) filer
- You receive rental income
- You receive certain kinds of other income payments made in cash
- You provide medical or health care services
- You receive crop insurance proceeds
- You sell goods and/or services and request payments via credit card, debit card, or PayPal
- You receive $20 or more in royalties. Any business that has paid you at least $600 in royalties must file a Form W-9.
- You own a business and receive $600 or more in other income payments
- You provide services to an attorney and receive $600 or more in cash
- You are a fishing boat crew member and earn $10 or more in cash from each client during the year
- You are a registered independent sales agent and receive $5,000 or more in annual commissions
- You have paid someone at least $600 to care for your child under age six
- You are an employer who made health care payments to or for an employee of $600 or more
- You are a sponsoring organization that made payments of at least $600 to organizations that are required to file Form 1099-K, box 4
Is Form W-9 required by law?
Form W-9 is required by law for any person who receives wages, commissions, or other types of payments while working in the United States. It is required to ensure that an individual's taxes are correctly matched with his or her income.
What does DBA mean on Form W-9?
A DBA on Form W-9 stands for "Doing Business As." It is an optional entry that can be included by you or your company if you operate under a business name other than the official one on file with the state.
If you are asked to provide a DBA on Form W-9, you can choose whether or not to include your business name.
If a DBA is included for a sole proprietorship, it can be written as "John Doe doing business as Jane's." If the business has multiple owners, the name should include all names, such as "Jane Smith and John Jones d/b/a ABC."
Does Form W-9 get sent to the IRS?
No, Form W-9 is not sent to the Internal Revenue Service (IRS) but to the person who requested it.
The IRS has specifically stated that the payer or company who requested your Form W-9 does not have to send them a copy of it. They must keep the completed Form W-9 on file for future reference.
Does the IRS require a new Form W-9 every year?
No, the Internal Revenue Service does not require a new Form W-9 annually unless you are told to do so. Also, if you receive a new Taxpayer Identification Number that is not your Social Security Number, you need to file a new Form W-9 to update the IRS.
Employers must keep their contractors' W-9 forms on file so they will not need to re-file W-9 forms every year.
Do I need to complete a new Form W-9 for each company?
Yes, you may complete a new Form W-9 for each company you work for. However, it is not required.
If you are a business owner, you need to file a new Form W-9 each time you change your business name or Taxpayer Identification Number.
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