Does your small business rent unbiased contractors, gig employees, or freelancers? If that’s the case, congratulations—you get to study the ins and outs of IRS Type W-9! So, what’s the news with the IRS W-9 kind? What precisely is it used for? Who must fill one out? We have now the solutions to your entire burning questions (and extra!) under.
What’s a W-9 kind?
First issues first, what’s a W-9 tax kind? Type W-9, Request for Taxpayer Identification Quantity and Certification, is a kind that companies should acquire from unbiased contractors for tax functions. In flip, companies use the shape to precisely put together a 1099 kind for unbiased contractors at year-end. Contractors use the shape to report their taxpayer identification quantity (TIN) to a enterprise they carry out work for.
IRS Type W-9 terminology to know
If it’s important to take care of W-9 kinds, there are just a few phrases you want to know just like the again of your hand. These embody:
- Taxpayer identification quantity
- Backup withholding
- Type 945
Taxpayer identification quantity
A taxpayer identification quantity is a particular quantity assigned to people and companies by the IRS or Social Safety Administration (SSA). In relation to Type W-9, people can both present their Social Safety quantity or Employer Identification Quantity (EIN) for his or her TIN.
Sometimes, people who obtain a W-9 kind don’t want something withheld from their funds. Nevertheless, In some instances, backup withholding comes into play.
So, what’s backup withholding? Backup withholding requires you to withhold a 24% tax from the wages of a contractor, freelancer, and many others. and pay it to the IRS. You might have to withhold and remit backup withholding if the:
- Particular person didn’t present an accurate TIN on their W-9 kind
- Contractor didn’t certify their TIN
- IRS tells you the TIN is wrong
- IRS tells the contractor their funds are topic to backup withholding as a result of they didn’t report curiosity and dividends on their tax return
Take a look at the IRS’s funds topic to backup withholding for extra info.
Type 945, Annual Return of Withheld Federal Earnings Tax, goes hand in hand with backup withholding. If a contractor’s funds are topic to backup withholding, use Type 945 to report the quantity you accumulate from the unbiased contractor for the withholding.
Type W-9 vs. Type W-4
In lots of instances, enterprise house owners collect Type W-9 from contractors to allow them to present Type 1099-NEC, Nonemployee Compensation, come tax time. Consider Type W-9 as a Type W-4 for contractors. If you rent a contractor to do work in your firm, have them fill out Type W-9 similar to you’ll have an worker fill out a W-4 whenever you rent them.
Whereas Type W-9 is for distributors, contractors, and many others. who obtain nonemployee compensation and is solely for informational functions. However, employers should use Type W-4 to find out how a lot to withhold in federal earnings taxes from an worker’s paychecks.
What’s a W-9 kind used for?
Type W-9 tells you an unbiased contractor’s info so you’ll be able to accurately fill out Type 1099-NEC.
You might be required to report nonemployee compensation on Type 1099-NEC. It’s essential to ship a replica of 1099-NEC to the:
- Unbiased contractor
- State tax division (if relevant)
It’s essential to additionally make a copy of Type 1099-NEC in your information together with Type W-9.
Unbiased contractors use Type 1099-NEC to fill out their particular person earnings tax return, Type 1040.
What’s on the shape?
Collect Type W-9 from all relevant people. The one who fills out the shape should present the next info:
- Enterprise or entity identify, if relevant
- Tax classification (e.g., LLC)
- Deal with
Be sure you have Type W-9 on file for every unbiased contractor you rent and pay $600 or extra in nonemployee compensation in the course of the tax yr.
Who must fill out a W-9?
Contractors aren’t the one ones who must fill out Type W-9. You may additionally want to make use of Type W-9 to report different varieties of earnings, together with:
- Actual property transactions
- Mortgage curiosity
- Acquisition or abandonment of secured property
- Cancellation of debt
- Contributions made to an IRA
In case you’re uncertain about if you want to full or fill out Type W-9, try the IRS’s Type W-9 Directions. Or, contact the IRS immediately.
The place do you ship Type W-9?
Don’t ship Type W-9 to the IRS. As an alternative, make a copy of it in your information. You may hold a paper copy, or you’ll be able to retailer a digital copy in your gadgets (e.g., laptop) for safekeeping.
How do I get a W-9?
Because the enterprise proprietor, you might be required to get Kinds W-9 in your unbiased contractors. You may obtain a printable W-9 kind straight from the IRS’s web site.
This text has been up to date from its authentic publication date of August 29, 2017.
This isn’t meant as authorized recommendation; for extra info, please click on right here.