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IRS Type W-9 | Function and When to Use It

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. 

Backup withholding

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

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
  • IRS
  • 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.

Need to study extra about your Type 1099-NEC duties?

Find out about Kinds 1099-NEC and 1099-MISC with our in-depth (and free!) information, Get the Lowdown on Kinds 1099-NEC and 1099-MISC.

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:

  • Title
  • Enterprise or entity identify, if relevant
  • Tax classification (e.g., LLC)
  • Exemptions
  • Deal with
  • TIN
  • Signature

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. 

Why is Form W-9 important? Contractors fill out Form W-9 when they're hired; businesses use the information on Form W-9 to fill out Form 1099-NEC; contractors use Form 1099-NEC to fill out Form 1040.

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.



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