What is a W-9 Form?

A W-9 form is kind of like a loyalty card at a department store…

When you sign up, you have to provide all of your personal information. You get perks throughout the year (sort of like your paychecks). Then at the end of the year, the store sends you a summary of all the rewards points you earned.

The purpose of a W-9 form, officially called a “Request for Taxpayer Identification Number and Certification,” is to help businesses collect information about the independent contractors they hire. That includes the individual’s name, address, and tax identification number, which can either be a Social Security number (SSN) or employer identification number (EIN). The contractor is the one who fills out and signs the form.

Neither the business nor the contractor ever actually sends a W-9 to the Internal Revenue Service. It’s just a way for businesses to collect information that they’ll use to fill out a different form (1099) at the end of the tax year. Without knowing the identifying details in a W-9, a business may not be able to accurately report a contractor’s earnings to the IRS. Since freelancers don’t have taxes withheld in paychecks, the government wants to make sure it has a complete picture of what contractors make to ensure they pay taxes on all their income.

As far as tax forms go, the W-9 is pretty short. Since contractors are not employees and won’t have taxes withheld, they don’t have to provide as much information as traditional employees. Here are the fields you have to fill out on a W-9:

1. Name

Write your legal name as it appears on your federal income tax return.

2. Business name

Fill in the name of your business, such as the name of your LLC, partnership, or corporation. This could also be a DBA (doing business as) name that you’ve registered with the secretary of state. If you operate under your own legal name, you can leave this line blank.

3. Tax classification

Select your federal tax classification, meaning how you have legally registered your business. If you haven’t registered your business at all, check the box for an individual or sole proprietor. If you have registered as a limited liability company (LLC) with just one owner, you are a single-member LLC and can check the same box. If you’re registered as a C corporation, S corporation, partnership, or trust or estate, check the corresponding box instead.

There is a separate box to check for LLCs with more than one owner. In this case, there is also a separate field for you to fill in the LLC’s tax classification.

4. Exemptions

Exemptions only apply to entities, not individuals, and most freelancers will leave these boxes blank. The W-9 form provides codes that you can use to indicate if your business is exempt from backup withholding (when the payer withholds a percentage of payments for taxes) or from reporting on accounts held at financial institutions abroad.

5-6. Address

Fill out your address, including street name and number, city, state, and ZIP code.

7. Account numbers

You have the option to include account numbers that your employer will need here, such as a bank or vendor accounts. Most people leave this blank.

Part I: Tax identification number

Write in your nine-digit Social Security number or employer identification number, placing one digit in each box. Only individuals and sole proprietors can use a Social Security number, but many choose to apply for an EIN instead to avoid having their personal information circulate and put them at risk of identity theft. You can easily apply for an EIN on the IRS website.

Part II: Certification This is where you sign and date the document to certify that everything on the form is accurate. By signing, you are also confirming that you are not subject to backup withholding and that you are a U.S. citizen or “U.S. person,” which includes permanent residents, companies established in the United States, and domestic estates and trusts. Make sure to review the instructions and your responses carefully, since this is a legal document.

If you refuse to fill out a W-9 form that a business has provided, you could be subject to a fine of $50 and backup withholding (meaning the businesses might keep a percentage of your paycheck to send to the Internal Revenue Service).

By not filling out the form, you’re also putting your clients in a difficult situation, and there’s a chance they won’t want to work with you again.

In general, you have to file and pay taxes for any income you earn, regardless of whether you fill out a W-9 form.

If the business that asked you to fill out a W-9 pays you $600 or more in a calendar year, it will provide you and the Internal Revenue Service with a 1099 form, which you’ll use to file taxes for that year. However, you’re responsible for reporting all your income, regardless of whether you receive a 1099 form and whether it is accurate.

Independent contractors don’t have taxes withheld from paychecks, so if you fill out a W-9, you may owe federal and state income taxes at the end of the year or estimated taxes throughout the year. How much you owe, if anything, depends on your other sources of income, how much you make, and other factors.

Most likely, the business you are working with will request that you fill out a W-9 form as soon as they retain you or when you invoice. The company you are doing business with should provide you with a W-9. If it doesn’t, you can find the form on the IRS website.

These are all tax forms that you may receive when starting a new job or filing taxes. It can be tricky to keep them straight, but here’s a quick rule of thumb: W-9 and 1099 forms are for independent contractors, while W-2 and W-4 forms are for employees. Let’s go over them a bit more:

Like the W-9, the W-4 is a form businesses use to collect information about the people working for them. The key difference is that the W-9 gathers details about independent contractors, while the W-4 form is for employees.

Companies need a lot more information from employees than they do from freelancers, so the W-4 is more comprehensive. In addition to an employee’s personal information, the W-4 asks about how much the individual wants to have withheld from paychecks based on tax allowances.

A W-2 is a tax form that employers provide to each of their employees every January to cover the previous calendar year. Also known as a “Wage and Tax Statement,” this form reports the employee’s wages and tips, as well as how much he or she paid in income, Social Security, and Medicare taxes.

Businesses use a W-2 to report this information to the government, and employees use it to file annual income taxes.

A 1099 is a form that businesses send to independent contractors showing how much they have paid them that year. Freelancers can receive multiple 1099 forms in a given year, depending on how many clients they have.

You can think of a 1099 as a complement to the W-9 form — The contractor fills out a W-9 and gets a 1099 in return, as long as he or she made at least $600 from that client. The company is required to provide 1099s to their contractors by the end of January.

Remember, businesses don’t withhold income taxes for their independent contractors. Contractors are responsible for paying their income taxes directly to the Internal Revenue Service, and often at the state level, usually quarterly.