If you're an independent contractor, freelancer, or self-employed individual, you’ll likely be asked to fill out a W-9 by companies that must report the payments they make to you. Completing this form correctly helps ensure the company reports the correct income, avoiding complications with your taxes.
What is Form W-9?
Form W-9, Request for Taxpayer Identification Number and Certification, is a document used by a business to collect tax-related information from individuals and entities. The form helps businesses gather your Taxpayer Identification Number (TIN), which could be either your Social Security Number (SSN) or Employer Identification Number (EIN). This information is then used to report certain types of income paid to you, such as non-employee compensation, to the IRS.
Who Should Fill Out Form W-9?
Anyone who is paid as a non-employee should complete Form W-9 when requested. This includes:
- Freelancers or independent contractors hired by a business.
- Sole proprietors, LLCs, or corporations that receive payments from clients.
- Self-employed individuals receiving 1099 income for services rendered.
- Landlords receiving rental income.
- Individuals earning interest, dividends, or other reportable income.
If you’re earning income outside of traditional employment or your business needs to report payments made to others, you’ll likely need to fill out Form W-9.
When Do You Need to Provide a Form W-9?
Form W-9 is typically requested when a business needs your TIN to report payments made to you. The most common scenarios include:
- Independent contractors or freelancers hired by a company and paid more than $600 in a year.
- Landlords receiving rental payments.
- Financial institutions reporting interest, dividends, or other taxable income.
- Businesses reporting payments for services or royalties.
In these situations, the requesting business will use your W-9 information to generate Form 1099, which reports your income to the IRS.
Step-by-Step Guide to Completing Form W-9
Since Form W-9 requires you to provide sensitive information, it’s important to ensure that you only provide the form to trusted businesses or individuals with a legitimate need for it and keep a copy of the completed W-9 for your own records.
Completing Form W-9 is straightforward; begin by downloading a copy of the W-9 from the IRS here. It's important to understand each section to ensure you're providing the correct information:
- Line 1: Your Name: Enter your full legal name. If you’re completing the form for personal income (as an individual), use your name as it appears on your Social Security card.
- Line 2: Business Name: If you operate under a business name or DBA (Doing Business As), enter that name here. Sole proprietors may need to fill this in if they use a business name.
- Line 3a: Federal Tax Classification: Check the appropriate box to indicate whether you’re an individual/sole proprietor, LLC, partnership, or corporation. If you’re an LLC, specify the tax classification (C, S, or P for partnership).
- Line 4: Exemptions: Leave this blank unless you’re exempt from backup withholding, which most individuals and small businesses are not.
- Line 5: Address: Provide your current mailing address where you can receive any tax documents, such as Form 1099, sent to you by the business.
- Part I: Taxpayer Identification Number (TIN): Enter your SSN if you’re an individual or your EIN if you’re filing on behalf of your business entity.
- Part II: Certification: Sign and date the form to certify that the information provided is accurate. By signing, you also confirm that you are not subject to backup withholding unless notified otherwise by the IRS.
Re-issuing Form W-9 to payers when forming a new entity
When you decide to form a new business entity, such as an LLC or S Corporation, it’s important to re-issue IRS Form W-9 to any payers you work with. This is important for several reasons:
- Updated Tax Identification Number (TIN): If your new entity has its own Employer Identification Number (EIN), you’ll need to provide this updated TIN on the new W-9. Using the correct TIN helps ensure that income is reported accurately to the IRS.
- Change in Tax Classification: When you form a new entity, your tax classification may change. For example, if you transition from being a sole proprietor to an LLC, your tax treatment may differ. Providing an updated W-9 allows payers to report your income under the correct classification.
- Accurate Record-Keeping: Payers rely on your W-9 information for their record-keeping and tax reporting. Submitting an updated form ensures they have the most current information on file, reducing the risk of discrepancies in income reporting.
- Avoiding Backup Withholding: If you don’t provide a new W-9 after forming a new entity, payers may be required to implement backup withholding on payments made to you. This means that a percentage of your payments (currently 24%) would be withheld for tax purposes, which can impact your cash flow.
How to Re-Issue Your W-9
When you’re ready to provide a new W-9 for your newly formed entity, follow these steps:
- Complete the New W-9: Fill out the form with your updated information, including your new business name (if applicable) and TIN (EIN).
- Notify Your Payers: Let your clients or payers know that you have formed a new entity and that they should use the updated W-9 for future payments.
- Send the New W-9 Promptly: Provide the new form to your payers as soon as possible to ensure they have the correct information for their records.
By taking these steps, you help maintain smooth business operations and ensure compliance with tax regulations. If you have questions about reissuing your W-9 or how it affects your specific situation, consider consulting a tax professional for personalized guidance.