How to Request Form W-9 From Independent Contractors
When and Why Do You Need Forms W-9?
You can’t fill out and issue Forms 1099-MISC to your vendors and independent contractors unless you first obtain a completed Form W-9 from each of them. IRS Forms 1099-MISC and W-9 go hand in hand. You must know the name, address, and taxpayer identification number of each vendor or contractor who requires a Form 1099-MISC, and Form W-9 supplies you with this information.
Information Included on Form W-9
Form W-9 is similar to the W-4 form you would ask an employee to complete and upon which you would base tax withholding from their paychecks. Form W-9 includes the taxpayer's identifying information, and it asks that the vendor or contractor state whether they operate as a sole proprietorship, a corporation, a partnership, or a single-member limited liability company.
Form W-9 also asks the vendor or contractor to certify that they're a U.S. citizen or resident alien.
Who Must Issue Forms 1099-MISC
The instructions for Form 1099-MISC from the Internal Revenue Service explain the various situations that require businesses to issue Forms 1099-MISC. You must complete, file, and issue this form to all vendors or contractors to whom you've paid $600 or more during the tax year.
Vendor payments can include rent for property used in business, and contractors can include attorneys who provide services to your business. Taxpayers don't have to issue 1099-MISC forms for attorneys they retain to handle personal matters.
The threshold is much lower—just $10—if you make broker payments or pay royalties in lieu of tax-exempt interest or dividends. It's much higher if you sell merchandise to someone for resale and they don't operate a permanent retail establishment. You must issue a 1099-MISC if you sold them more than $5,000 in consumer merchandise in this case.
Independent Contractors vs. Employees
The distinction between employees and independent contractors who provide services to your business is an important one. An employee is anyone whose work you or your business control. Someone who answers your telephones is most likely an employee if you set their hours and dictate what they should be doing while they're on the clock.
Employees don't require 1099-MISC forms. You would report their earnings and compensation on Form W-2 instead.
Someone who cleans your office when you’re not open for business and who does so at times left to their discretion is most likely an independent contractor and would require a Form 1099-MISC. Someone you hire someone to create a website for your business would most likely be an independent contractor. You don't control when and how they work. Your business relationship is this one, isolated job. You don't require them to report to your business to maintain your Internet presence.
The IRS outlines some other, finer points of identifying independent contractors vs. employees as well. You control an employee's compensation—you determine when and if they're entitled to a raise. A contractor is essentially running their own business and they can hike their rates whenever they like, without your approval, although you're free to decline their services and use another less expensive contractor instead.
You can submit Form SS-8, "Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding," to the IRS if you're unsure of the status of a worker. The IRS will tell you whether they're an employee or an independent contractor based on the information you provide.
Be Sure to Get It Right
The IRS takes a particularly dim view of businesses classifying workers as independent contractors when, in fact, they're employees, so you'll want to make sure you get this right. You don't have to incur payroll taxes on behalf of contractors, so many consider this to be the better relationship with those who provide services to your business. But you can't do so without a tax penalty unless the individual meets all the requirements of an independent contractor.
Reach out to the IRS if you're unsure how to classify someone who performs work for you. They're glad to help you make the distinction if you provide them with Form SS-8, a request to have the IRS make the decision for you, but it can take up to six months for a reply. A contractor, vendor, or worker can submit the form for a decision as well.
Exceptions to the Contractor/Vendor Rule
You don't have to issue 1099-MISC forms to C and S corporations or to entities from whom you purchase products, such as merchandise for resale. Payments made to contractors and vendors by debit card, credit card, or through third parties like PayPal are also exempt—the IRS uses a different method to track these transactions. They're reported on Form 1099-K.
When to Ask for a Completed Form W-9
It's a good practice to request that an independent contractor provide you with a completed Form W-9 as soon as you know that you'll be doing business together and will have to issue them a 1099-MISC form. It's too easy to let these requests slide until January. The next thing you know, you're looking over your accounting records and realizing you never got around to it.
Say something like, "Hey, I'm going to be sending out your 1099-MISC by the end of January and I realized I don't have a W-9 from you. Could you fill out one and send it to me?" if you must issue a 1099-MISC and you don't have a completed W-9 form on file. Better yet, keep a supply of blank W-9 forms so you can simply hand them out as necessary when you contract with anyone for services. You can download the form and print it out from the IRS website.
This approach lets the contractor know that the information on the Form W-9 will be used to generate a specific tax document.
Encourage people to send you their completed Forms W-9 in a secure manner. A completed W-9 includes sensitive information such as the taxpayer's Social Security or tax identification number. This data should be kept as private and secure as possible to minimize the risk of the data falling into the wrong hands.
Transmitting a completed Form W-9 as an insecure file attachment to an email is not recommended. Ask to receive it by mail, hand delivery, or as a password-protected file attachment to an email.
NOTE: Tax laws change periodically and the above information may not reflect the most recent changes. Please consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice.