Form W-9: What Business Owners Need to Know
When it comes to managing your business and working with the IRS, you’ve probably noticed that a lot of forms are involved. For businesses that hire contractors, the Form W-9 is important to understand.
Throughout August, I conducted weekly Facebook Lives about the Form W-9, addressing the most common questions that small business owners and independent contractors might have about the form.
What’s the difference between an employee and a contractor?
I could talk about this topic for hours, but let’s boil it down to the basics. Most of you know what an employee is, but how do you know if what you have is a contractor? A contractor is a business or person that you hire to perform tasks within your business that you cannot do yourself. For example, I hire people to manage my marketing because it’s not what I am good at doing or enjoy doing. Many independent contractors and small business owners hire me to do their bookkeeping because it’s something they either don’t understand or don’t want to spend time doing.
If you have an employee, you are giving specific instructions and require that projects be completed at a certain time in a certain place. You also provide the equipment they use to complete the work.
If you have a contractor, they set their own rate of pay and invoice you for payment.
What is the Form W-9?
If you hire contractors or you work as a contractor yourself, you need to know what the Form W-9 is. A business that hires a contractor to perform work should obtain a completed W-9 from the contractor before any work commences. A W-9 gives the necessary information to complete the 1099-NEC, which is the form used to report contractor payments over $600 in a year to the IRS. It’s the contractor version of the W-4, which is what employees must complete.
Four items are required on the W-9:
Name of the person or business,
Address,
Tax Identification Number, and
Tax Classification.
For the name, use the business name if it’s an official business. The address should be the one on file with the IRS for that business or person. If it’s a business, they need to use their EIN and if it’s an unincorporated individual, use their Social Security Number. The tax classification is essential, but not having that information should not mean that a 1099 is not issued. It will simply be incomplete.
Why and when should I need a W-9 from someone?
When should you seek a W-9 from a contractor? As soon as possible and, preferably, before any work begins. If you’ve already started working with a contractor and haven’t received a W-9, there is no time like the present to request the document.
What if I don’t receive a W-9 from a contractor?
Hopefully, this will be rare in the life of your business. Technically, you can submit a 1099 without the TIN for the contractor, but you will receive a letter from the IRS advising against doing so in the future. If you find it necessary to submit an incomplete 1099, start saving backup withholding because the IRS could hold you responsible for paying the contractor’s missing taxes. Self-employment tax and income tax are generally more than 28 percent. You will need to either reduce the payments to the contractor or cover this expense from your own funds. I know I pay enough of my own taxes and don’t want to pay anyone else’s!
Do you need help completing and filing your 1099s? Get scheduled now on my calendar, and I can help.