Form W-9 is an Internal Revenue Service (IRS) tax form used to confirm an individual’s name, address, and taxpayer identification number (TIN) for employment purposes. This mandatory document must be filled out whether you are a U.S. citizen or a resident alien, and can result in costly issues if you fail to complete one. Here’s what you need to know about the Form W-9 and why it’s so important.
Why a Form W-9 Is Necessary
In the United States, businesses must classify you as either an employee or an independent contractor. Depending on your designation, the company will either request a Form W-9 (independent contractor) or a Form W-4 (employee). Not only does this IRS form provide businesses with important information about you, but it also acts as an agreement that you are responsible for mapping out your income tax.
Under a W-9 Form, the business will not withhold any taxes. This means that unlike a Form W-4, you are responsible for making sure the right amount of taxes is paid to the IRS. Additionally, you are required to pay both the employee’s and the employer’s shares of Medicare taxes and Social Security.
Figuring out whether you need to fill out a Form W-4 or a W-9 Form based on the work you do may get confusing in some situations. Consider the following elements of your job to better gauge your working relationship:
- How much control does your employer exert over you?
The more they do, the more likely you are an employee. This might include parameters like set work hours, work locations, overtime requirements, the scope of your job description, and more.
- How are you paid?
Further, what benefits are you offered, are expenses reimbursed, and does the employer provide the supplies? If the employer controls these aspects of your job, you are probably an employee.
When in doubt, ask! The last thing you want is to misunderstand your classification now and have costly tax implications later.
Other Purposes of Form W-9
Independent contractors are not the only one group that needs to fill out a Form W-9. Certain circumstances may also require a U.S. person to fill out a Form W-9. They include the following:
- Particular real estate transactions
- The acquisition or abandonment of secured property
- Mortgage interest paid
- The cancellation of debt
- Specific contributions to an individual retirement arrangement (IRA)
If any of these situations applies to you, you may need to complete the Form W-9 before proceeding with your project or task.
What Goes Into Filling Form W-9
The W-9 Form is pretty straightforward, but you still need to be sure you fill out the appropriate boxes. You will start by including the name of the business that hired you and their employer identification number (EIN). From there, you will include the following information:
Line 1: Name
This needs to be your full name and match the name on your tax return.
Line 2: Business Name
Indicate your business name, doing business as (DBA) name, trade name, or disregarded entity name.
Line 3: Federal Tax Classification
This section will define how you are classified when it comes to federal taxes. The first box is checked if you are an individual/sole proprietor, or a single-member limited liability company (LLC). The sole proprietorship operates under its own Social Security number and is not registered with another type of business. The other boxes apply to S corporations, C corporations, Trust/Estate, and Partnerships.
Line 4: Exemptions
If you are an individual, you do not need to fill out this section. Only certain payees such as business entities may have a reason to fill out this space. In addition, these companies will need to include the reason for their exemption.
Line 5 and Line 6: Address, City, State, Zip Code
This section will include your primary address where you want your employer to mail your information returns.
Line 7: Account Number
In this section, you will provide any account number your employer may need from you.
Part I Taxpayer Identification Number (TIN)
Per the general instructions, you will have two options here. You can provide your SSN or your employer identification number. If you are filing as a single-member LLC or an individual, you will provide your SSN. If you are classified as a partnership or corporation, you will use your employer identification number. As a sole proprietor, you can use either number, but the Social Security number is usually preferred. In situations where you are considered a resident alien, use your IRS individual taxpayer identification number (ITIN).
Part II Certification
Finally, you will want to sign and date the form. But before you do, make sure that you verify that your data is filled out accurately and entirely. Check over all the information before you send your completed form.
If you need further information about any of the sections, visit the IRS website for details.
What Problems Occur If You Do Not Have Form W-9
Penalties occur when you do not fill out required IRS forms. You can be penalized $50 and be subject to backup withholdings if you do not fill out a W-9 requested by your employer, for example. As a worker, this means your employer will withhold 28% of your check and forward this amount to the IRS.
The same is true if you provide false statements that result in no backup withholding and you have no exemptions: You can be subject to a $500 penalty for each incident, and be prosecuted for criminal behavior. This usually occurs if you falsify any information on the W-9 Form.
Under the laws of the United States, employers must file their 1099s — even in situations where the employer does not receive a Form W-9 from one of their workers. Employers that decide to delay this filing or file the form with incorrect information can still be subject to fines ranging between $50 to $530, regardless of whether these actions were due to the missing Form W-9.
Additionally, these employers cannot misuse confidential information from the worker’s Form W-9. They can be subject to criminal and civil penalties if they do.
Always Fill Out Required Paperwork
It is essential to be proactive when it comes to your Form W-9 as the form is not that difficult to complete, but the penalties for failing to do so can be costly for both workers and employers. If you are having any issues with your Form W-9, contact Silver Tax Group today. Let us answer your W-9 form questions. If you prefer, you can also speak with an expert about any other tax-related questions you might have.