How to Request Form W-9 From Independent Contractors
When and Why Do You Need Forms W-9?
IRS Forms 1099-MISC and W-9 go hand in hand. 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. You must know the name, address, and taxpayer identification number of each vendor or contractor who requires a 1099-MISC, and Form W-9 supplies you with this information.
What Information Is Included on Form W-9?
The form is similar to the W-4 form you ask employees to complete. It includes the taxpayer's identifying information for tax purposes. Form W-9 also asks that the vendor or contractor state whether he operates as a sole proprietor, a corporation, a partnership, or a single-member limited liability company. It also asks the vendor or contractor to certify that he's 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.
Vendors include rental payments for property used in business, and contractors include attorneys who provide services to your business. Taxpayers don't have to issue 1099-MISC forms for attorneys they retain to handle personal business.
The threshold is much lower—just $10—if you pay broker payments or royalties in lieu of tax-exempt interest or dividends, and it's much higher if you sell merchandise to someone for resale and she does not operate a permanent retail establishment. In this case, you must issue a 1099-MISC if you sold her more than $5,000 in consumer merchandise.
Who Is an Independent Contractor and Who Is an Employee?
The distinction between employees and independent contractors providing services to your business is an important one. An employee is anyone whose work you or your business control. If you pay someone to answer your telephones, he’s most likely an employee because you set his hours and dictate what he should be doing while he is on the clock. Employees do not require 1099-MISC forms. You would report their earnings and compensation on Form W-2 instead.
If you pay someone to clean your office when you’re not open for business and he arrives and does so at times left to his discretion, he’s most likely an independent contractor and he requires Form 1099-MISC. The same applies if you hire someone to create a website for your business. You don't control when and how he does this, and your business relationship with him is for this one, isolated job. You're not requiring him to report to your business location on specified days to maintain your Internet presence.
The Internal Revenue Service explains other, finer points of identifying independent contractors vs. employees as well. You control an employee's compensation—you determine when and if she is entitled to a raise. A contractor is essentially running his own business and he can hike his rates whenever he likes, without your approval, although you're free to decline his services and use another less expensive contractor instead.
If You're Still Not Sure
The Internal Revenue Service 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 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 does work for you. They're glad to help you make the distinction and even provide Form SS-8, which you can submit to request a decision from the IRS.
Exceptions to the Contractor/Vendor Rule
You do not 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.
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 have to issue him 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 realize 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 hand them out as necessary when you contract with anyone for services. 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 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.