Many businesses in the US prefer to hire contractors over employees for certain roles, especially those that are temporary, seasonal, or have an uncertain capacity.
But just because you’re hiring contractors doesn’t mean you don’t have to get your paperwork in order.
And, if you’re hiring contractors in the United States, there’s one particular piece of paperwork you’ll need to become very familiar with the W-9.
In this article, we’ll explain what the W-9 is, what it's for, when to use one, and the common mistakes businesses make when using W-9 forms.
What is a W-9 form?
A W-9 form is an official document from the IRS (Internal Revenue Service) used in the US to collect information for individuals and entities that are being hired as independent contractors, freelancers, or self-employed workers.
While the form is officially titled Request for Taxpayer Identification Number and Certification, it is referred to in most circles as a W-9.
The W-9 has three main purposes:
- Taxpayer identification. The primary purpose of this form is to collect the taxpayer’s ID number, typically a Social Security Number (SSN) for individuals or an Employer Identification Number (EIN) for businesses. It tells the IRS who is working for what business and in what capacity.
- Tax reporting. Businesses and individuals who hire independent contractors need the W-9 form for tax purposes, specifically to report payments to the IRS. The information on the W-9 allows the payer to issue a 1099 form at the end of the year that details the total amount paid to the contract. The IRS then uses this info to ensure that all income is correctly reported.
- Backup withholding. The W-9 also certifies that the taxpayer isn’t subject to backup withholding. If they are, then the payer must withhold a percentage of payments to that taxpayer. If, using the W-9, the individual certifies that they are empty from this, the payer can release the full amount.
Information required on a W-9
The following information is required to be included when filling out a W-9 form:
- Your full legal or business name.
- Your federal tax classification (e.g. individual, C Corp, S Copr, LLC)
- Your full mailing address
- Your TIN (taxpayer identification number), which will either be your Social Security Number or your Employer Identification Number
- Your signature and the date to confirm the accuracy of the information provided
When to use a W-9 form?
Businesses need to collect W-9 forms whenever they bring on a new independent contractor or freelancer that they pay for services, provided they total $600 or more in a calendar year.
The person also needs to be a US citizen or resident. If you’re hiring a contractor from a different country, they’ll need to use a W-8 form.
How to fill out a W-9 form?
Filling out a W-9 form is simple. Just follow the five steps:
- Download the W-9 form from the IRS website.
- Complete all fields of the form with the relevant information.
- Make sure to include your Taxpayer Identification Number.
- Sign and date the form.
- Submit the completed form to the person or business requesting it (not to the IRS).
Common mistakes businesses make when filling out a W-9
What are some of the big mistakes that businesses and individuals make when using the W-9 form?
Let’s explore so you can make sure to avoid making them yourself.
Incorrect or missing TIN
One of the biggest issues that pop up with W-9 forms is when the contractor’s taxpayer ID number — their SSN or EIN — is either missing or incorrect.
This leads to IRS mismatches which ultimately cause delays and can even lead to penalties.
The solution here is to include in your process a verification step. The IRS even has some TIN matching tools to help you out here.
Using outdated forms
The W-9 form does get updated from time to time. When businesses use older versions of the form, they may not meet current IRS requirements and end up getting rejected.
The best practice here is to always direct your contractor to the IRS website to download the most recent form, rather than saving it and sending it out yourself.
Incomplete forms
It's more common than you might think for a contractor to send back a W-9 form that doesn’t include all of the necessary information. It's super easy to miss a section like the signature field, and this means that the W-9 is no longer valid.
Solve this problem by making it a practice to review the forms you receive from contractors when they submit them, and send them back when a field is left blank.
Failure to update information
When a contractor’s business or tax information changes, a new W-9 needs to be collected. Of course, hiring companies don’t always know when this happens.
So, a good practice is to regularly request updated W-9s from your contractors, such as on a yearly basis.
Improper storage of forms
Storing W-9 forms in an insecure manner can put sensitive information like Social Security Numbers at risk.
It’s your responsibility as the business hiring the contractor to keep these forms in secure, encrypted digital systems to protect contractors' sensitive data.
Streamline your tax obligations
The W-9 form is an important document used to collect taxpayer information. Businesses in particular use this form to fill out the 1099.
BILL, our financial operations platform, helps to make tax time easier by integrating with Tax1099. You can also export data from BILL to use with any 1099 solution that uses CSV files.
Our diverse platform is also stacked with powerful features for managing business spending with contractors, such as:
- Spend analysis tools
- Contractor payment management
- Budget management
- Cash flow forecasting
FAQ
W-9 vs. 1099 tax form
The W-9 and the 1099 tax forms are two forms that are used together to help businesses report the payments they’ve made to independent contractors and freelancers.
The W-9 form is filled out by the contractor to provide taxpayer information to the business. The 1099 form is issued by the business at the end of the tax year to report payments made to that contract to the IRS.
Who should fill out a W-9 form?
Any person who is an independent contractor, self-employed worker, freelancer, or business entity not classified as a corporation should fill out a W-9 form when a client or business they are working for requests it from them.
W-9 vs. W-8 form
W-9 forms and W-8 forms are very similar documents, but they are used to collect information from different kinds of contractors.
A W-9 form is used by US citizens and residents, while the W-8 form and its variants are used by non-US individuals or entities to certify that they are not subject to US taxation, as well as to claim any applicable tax treaty benefits.
What is a W-9 for business?
A W-9 for business is the same form used by LLCs, partnerships, and corporations used to provide their taxpayer identification number (TIN) to the payer.
