IRS Form W-9 cites the name, address, and taxpayer identification number of each independent contractor who provides you with goods or services. These individuals must receive Forms 1099-NEC from you after the end of the tax year, and you can’t issue Forms 1099-NEC unless you first obtain a completed Form W-9 from each of them containing this necessary information.
It's a very basic form, but you should understand the implications of the information.
Definition of Form W-9
Form W-9 is similar to the W-4 form you would ask an employee to complete to provide you with the information you'd need to calculate tax withholding from their paychecks. In addition to the taxpayer's identifying information, the form asks that the contractor state whether they operate as a sole proprietorship, a corporation, a partnership, or a single-member limited liability company.
Who Uses Form W-9?
Only independent contractors and vendors will complete Form W-9, and the distinction between them and employees 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-NEC forms. You would report their earnings and compensation on Form W-2 instead.
But 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. They would require a Form 1099-NEC. Someone you hire to create a website for your business would most likely be an independent contractor because you don't control when and how they work. Your business relationship is this one, isolated job.
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 don't have to incur payroll taxes on behalf of contractors, so many businesses consider this to be the better, less expensive relationship. But you can't pay someone as an independent contractor without incurring a tax penalty unless the individual meets all the requirements of an independent contractor and is clearly not an employee.
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.
You don't have to issue 1099-NEC forms to C and S corporations, or to entities from whom you purchase products for resale. Payments made to contractors and vendors by debit card, credit card, or through third parties like PayPal are also exempt because the IRS uses a different method to track these transactions. They're reported on Form 1099-K.
Where to Get Form W-9
Encourage people to send you their completed Forms W-9 in a secure manner, because they contain sensitive information. This data should be kept as private and secure as possible to minimize the risk of having it fall 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.
What to Do If You Don't Receive Form W-9
It's a good practice to request that independent contractors provide you with completed Forms W-9 as soon as you know that you'll be doing business together. It's too easy to let these requests slide until January when you'll need them.
Say something like, "I'm going to be sending out your 1099-NEC by the end of January and I realized I don't have a W-9 from you. Could you fill one out and send it to me?" Better yet, download your own supply blank W-9 forms so you can simply hand them out as necessary when you contract with anyone for services.
Let the contractor know that the information on the Form W-9 will be used to generate a specific tax document.
You might not want to do business with an individual who doesn't want to give you a Form W-9. This type of situation has red flags waving all around it. For example, you could be held liable for penalties if they're subject to backup withholding and you don't know it so you don't do so as required. The form also asks for this information.
Requirements for Filing Form W-9
The instructions for Forms 1099-MISC and 1099-NEC from the Internal Revenue Service explain the various situations and finer details that require businesses to issue these forms. You must complete, file, and issue this form to all contractors to whom you've paid $600 or more during the tax year.
- IRS Form W-9 is completed by independent contractors who provide your business with certain goods or services.
- The form is submitted to your business, not to the IRS.
- Businesses use the information provided on Form W-9 to prepare and issue Forms 1099-NEC after the close of the tax year, detailing what what paid to each contractor.
- You must issue Forms 1099-NEC to contractors to whom you've paid $600 or more during the tax year, so you'll need Forms W-9 from these individuals.
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.