What is a W-9 Form?

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Definition:

A W-9 is a tax form U.S. businesses use to collect information from independent contractors in order to accurately report payments to the Internal Revenue Service.

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🤔 Understanding W-9 forms

Many companies work with independent contractors or freelancers, in addition to (or instead of) hiring traditional employees. Even though contractors are classified differently, businesses still have to tell the Internal Revenue Service how much they paid those individuals. The W-9 is a tax form that allows businesses to collect personal information from independent contractors, such as name, address, and tax identification number. By the end of January, businesses that paid a freelancer at least $600 in the previous calendar year use this information to issue a 1099 form. This document reports how much the business paid the contractor that year and goes to both the contractor and the IRS. Unlike with traditional employees, companies don’t have to collect a W-4 form from freelancers, since companies don’t withhold income taxes from their paychecks.

Example

Let’s say Anna is a freelance graphic designer. She works with several clients regularly, but is not their employee. Each time she signs a new client, that business sends her a W-9 form, where she provides her name, address, and Social Security number (SSN) or employer identification number (EIN). By January, each client that paid Anna at least $600 in the previous year will use this information to send a 1099 form to her and to the Internal Revenue Service.

Takeaway

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.

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What is a W-9 form?

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.

How do you read and fill out a W-9 form?

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.

What happens if you don’t fill out a W-9?

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.

Do you have to pay taxes if you fill out a W-9?

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.

How do you get your W-9?

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.

What’s the difference between a W-9, W-2, W-4, and 1099?

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:

W-4 Form

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.

W-2 Form

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.

1099 Form

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.

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Sign up for Robinhood and get stock on us.Certain limitations apply

New customers need to sign up, get approved, and link their bank account. The cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at rbnhd.co/freestock. Securities trading is offered through Robinhood Financial LLC.

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This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC (member SIPC), is a registered broker dealer. Robinhood Securities, LLC (member SIPC), provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. All are subsidiaries of Robinhood Markets, Inc. (‘Robinhood’).

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© 2022 Robinhood. All rights reserved.