What Is a W-9 Form? Everything You Must Know

The answer to the question, “What is a W-9 form?” is easy—it is a document that provides a client (or a taxpayer) with a contractor’s Taxpayer Identification Number (TIN). Taxpayers need this information when reporting the payments they made to individual contractors to the IRS.

If you’re a freelancer, independent contractor, or business owner working with these groups of individuals, this article will explain the essentials of filling out a W-9 form the right way. Let’s begin!

Key Takeaways

• A W-9 form is an IRS form used to help business owners verify a freelancer’s or contractor’s Tax Identification Number (TIN) needed for filing a Form 1099.
• The main difference between Form W-9 and Form W-4 is that the former is filled out by contractors and business owners, while the latter is completed by employees.
• Some common errors when completing a W-9 form include providing the incorrect TIN or EIN (Employee Identification Number), forgetting to sign the form, and choosing the wrong tax classification.
• It’s recommended that you file a W-9 form before the service is done and keep all your documents in a safe place for recordkeeping purposes.

What Is Form W-9?

Form W-9 (or Request for Taxpayer Identification Number and Certification) is an IRS tax form that confirms the correct Taxpayer Identification Number (TIN) of a contractor to a client or business that pays them for their services.

Individual taxpayers can use either their Individual Tax Identification Number (ITIN) or Social Security Number (SSN) as their TIN when filling out their Form W-9. Meanwhile, business entities use their Employer Identification Number (EIN).

Freelancers and contractors must fill out their Form W-9 mainly for compliance reasons as well as for preparing their income tax withholding process later on. Clients or businesses they work with use the information provided in this document to correctly fill out Form 1099 and report the amounts they pay for their services.

Without a contractor’s W-9, clients might end up inputting the wrong information on their 1099, resulting in an income tax return with inaccurate information. Even worse, any discrepancy on a taxpayer’s income tax return could mean a possible audit from the IRS.

Who Needs to Fill Out a W-9?

The most common group of individuals who need to file out a W-9 consists of independent contractors and freelancers who earn at least $600 from completing independent contractor jobs or generating miscellaneous income.

Other groups include:

• Borrowers. A borrower whose debt is forgiven by their debtor must file IRS Form 1099-C, Cancellation of Debt. In line with that, they may also have to fill out a Form W-9 to provide their tax and personal information.

• Other 1099 form recipients. Besides freelancers and contractors, 1099 recipients also include individuals who earn dividend income and small business owners who must report interest income.

• Individuals with a new bank account. Individuals who make a new bank account or want to change specific details on an existing one may also be required by the bank to complete a W-9 form. This way, banks verify their TIN before reporting their financial activities and income to the IRS.

• Unemployed individuals. Workers displaced from their jobs who want to apply for unemployment benefits should consider filling out a Form W-9. Doing so gives the IRS information about their FICA withholding, a crucial detail in assessing their eligibility for unemployment compensation.

How to Fill Out Form W-9: Step-by-Step Guide

To fill out a Form W-9, you must first understand the meaning of each line on the said document; knowing what a W-9 form is shouldn’t be limited to understanding its basic purpose.

Here is a quick but informative guide on how to properly fill one out:

Line 1-2 - Name and Business Name

Lines 1 and 2 are the first details that an independent contractor or taxpayer must provide on their W-9 form.

Line 1 is reserved for an individual taxpayer’s and sole proprietor’s first and last name. The same goes if it’s not an individual but an entity or a partnership—its full name should be stated here.

Meanwhile, Line 2 should be filled out by the client (a business owner or entrepreneur), who will state their trade or business name.

If a taxpayer owns a disregarded entity, they must also use Line 2. This can be a business that is:

• Owned by a single individual

• Not elected to be taxed by the IRS as a separate entity

• Structurally not a corporation

Line 3 - Federal Tax Classification

In Line 3 (Federal Tax Classification), taxpayers should choose how the IRS should classify them for federal taxation purposes. The obvious choice for freelancers and independent contractors should be ‘Individual’ (if they do not own or run a business).

On the other hand, the federal tax classification for business owners has different variations depending on the structure of their trade. These include:

• Sole proprietor
• Partnership
• Trust or estate
• Limited Liability Company (LLC)
• C Corp
• S Corp

If a business owner chooses to be classified as an LLC, they must specify whether they are operating as a partnership, a C corporation, or an S corporation on Line 3b.

Line 4 - Exemptions

The exemptions to be specified on Line 4 refer to FATCA and backup withholding exceptions.

FATCA, or the Foreign Account Tax Compliance Act, requires foreign financial institutions to inform the IRS of the foreign assets held by a U.S. citizen or account holder. It also mandates US expats to report their foreign accounts on their annual tax returns.

Meanwhile, backup withholding means a taxpayer must pay a flat 24% tax rate on payments and income that essentially should not be subject to income taxes.

For example, an individual who is unable to report their dividend income on their tax return becomes subject to backup withholding. The said type of tax withholding also applies to taxpayers who fail to provide a valid TIN.

US citizens and resident aliens may be exempted from FATCA reporting if their Social Security Number (SSN) and reported name match and show no discrepancies. If a taxpayer did not receive any notification about backup withholding from the IRS, they must also fill out Line 4.

Lines 5-6 - Address

Next, Lines 5 and 6 must be filled out with the details of their residential address, such as city, state, and ZIP code.

Line 7 - Account Numbers

Individuals and business owners should use Line 7 to provide additional information on their account withholdings as per the request of a financial institution or bank.

Part I - TIN (Tax Identification Number)

This field is where individuals and business owners must provide either their TIN or EIN.

Part II - Certification

Once the taxpayer has filled out all the applicable fields described above, they must sign their W-9 form under this field to confirm that the information provided is correct and up-to-date.

Backup Withholding and Form W-9

We’ve defined backup withholding as an additional 24% tax rate imposed on a taxpayer who fails to report certain income payments. These include but may not be limited to:

• Dividends

• Interest payments

• Attorney’s fees, as well as settlement payments to attorneys

• Gambling winnings

• Rents or profits

• Transactions done through payment cards and third-party networks

• Commissions and other forms of nonemployee compensation for independent contractors

• Broker or barter exchange payments

There are also those that are excluded from this type of withholding tax, such as:

• Canceled debts

• Qualified earnings from tuition programs

• Real estate transactions

• Foreclosures

• Archer MSA distributions

• Local or state income tax refund

• Unemployment benefits

• Employee stock ownership plan distributions

• Benefits from long-term care

• Retirement account distributions

Backup withholding also applies to taxpayers who are unable to provide a correct TIN, EIN, or SSN.

Form W-9 vs. Form W-4

The main distinction between Form W-9 vs. Form W-4 is that the former is used by independent contractors and business owners while the latter is used by regular employees.

Some other key differences between the two IRS forms include the following:

4 Practical Tips for Collecting W-9s

Aside from understanding what a W-9 form is and knowing how to fill it out properly, being practical when collecting W-9 forms reduces errors when submitting this document.

Here are some useful tips when collecting and preparing W-9 forms:

• The best time to collect a W-9 form is at the start of a project or service. Collecting Form W-9s upon the end of the service potentially leaves room for interruptions in the payment process in case any issue emerges subsequently.

• All W-9 forms and other documents needed for tax-paying purposes (such as invoices, receipts, and pay stubs) should be kept in a safe place.

• To make the process easier, you can opt for electronic (digital) methods to collect the form; it’s a quicker, more secure, and more convenient option overall.

• Clients should be able to provide any additional help needed to contractors if they aren’t sure how to correctly fill out the form. This way, they will avoid incorrect information on the 1099 form and further issues with the IRS.

4 Common Mistakes to Avoid When Filling Out W-9 Form

The most common mistakes when filling out W-9 forms have to do with failing to double-check that all required fields are completed with the correct information. Remember, a simple error when completing your IRS forms can lead to a ripple effect of more mistakes and even possible penalties.

Let’s see what the biggest Form W-9-related mistakes are:

• Providing an incorrect TIN. Inputting the wrong TIN on your W-9 form means having to pay backup withholding taxes. If possible, try to memorize the correct one or write the number combination on a piece of paper.

• Not signing your W-9 form. A W-9 form that is not signed by the person who completed it raises doubts about the validity of the information provided on the document. Always check whether you have signed the field labeled Part II, Certification, after filling out the lines before it.

• Selecting the wrong tax classification. Choosing the wrong tax classification on your Form W-9 affects your tax liabilities in such a way that you might pay less or more taxes. The IRS will notice this discrepancy on your form, so make sure you know how to properly classify your business.

• Requesting a W-9 form after services. Requesting a W-9 form after the service can be tedious and troublesome. After all, you might not have enough time to verify the information on the form, or it may take a while before the contractor responds to your request.

Avoid these mistakes by learning what a W-9 is in terms of the required information you must provide when filling it out. You should also be familiar with the Internal Revenue Service’s rules when completing their forms.

How Paystubs.org Can Help with Accurate Income Reporting

If you’re a client or a business that has acquired a contractor’s TIN and is supposed to fill out and submit their 1099 form, there’s a way to simplify the process.

Our pay stub generator can help you skip unnecessary hassle and prepare a 1099 form within minutes. All you need to do is input the required information, and it will create the document for you in no time!

Not only that, but this tool can also generate other documents needed for taxpaying or payroll regulation purposes, including pay stubs, invoices, and W-2 forms. Plus, besides the ready-made templates you can personalize, the generator also comes with a built-in calculator, which further facilitates the creation of the form.

Opting for this solution can save time and resources for your business and help you generate accurate income records in order to avoid problems with the IRS.

Final Thoughts

Now that you know the answer to the question, ‘What is a W-9 form?’ you’ve reduced the possibility of incurring mistakes when filling out the said document.

Additionally, learning when you should use it, how to differentiate it from Form W-4, and how to avoid mistakes when filling it out ensures you don’t get into trouble with the IRS due to taxpaying issues. Make sure you always have all these guidelines in mind—this will help you keep your financial matters under control and handle them more easily.