If you work as a freelancer or independent contractor, most of your clients should ask you to complete IRS form W-9, Request for Taxpayer Identification Number and Certification. This form helps businesses receive key information from their vendors in order to prepare information returns for the IRS. Businesses have to file information returns using Form 1099-MISC whenever they pay a freelancer or independent contractor a total of $600 or more during the year (see The Purpose of 1099 Forms).
Your clients will use the information on your W-9 to put your name, business name, address and taxpayer identification number (TIN) on the 1099-MISC they file about you. They will send one copy of 1099-MISC to the IRS and another copy to you in late January, following the end of the tax year.
Other circumstances for which you might be asked to fill out a W-9 include:
- certain real estate transactions
- mortgage interest paid
- acquisition or abandonment of secured property
- cancellation of debt
- contributions to an individual retirement arrangement (IRA)
(For more on its uses – and when you should question having to sign one – read The Purpose of the W-9 Form.)
Form W-9 is one of the easiest IRS forms to complete, but if tax forms make you nervous, don’t worry. We’ll walk you through the proper way to complete it.
Step 1: Enter your name as shown on your tax return. Easy, right?
Step 2: Enter your business name or "disregarded entity" name, if different from the name you entered for step 1. For example, you might be a sole proprietorship, but for marketing purposes, you don’t use your personal name as your business name; instead, you are “doing business as” some other name. You would enter that name here. As for the disregarded entity part, if you don’t know what it is, you probably aren’t one. The most common disregarded entity type is a single-member limited liability company. Sole proprietorships and S corporations are never classified as disregarded entities.
Step 3: What type of business entity are you for federal tax classification: sole proprietorship, partnership, C corporation, S corporation, trust/estate, limited liability company or “other”? Check the appropriate box. If you’re not sure, you’re probably a sole proprietorship, because you would have had to file a lot of paperwork to become one of the other entities.
Step 4: Exemptions. Chances are you’re going to leave these boxes blank. Here are a couple of exceptions:
1. Payees that are exempt from backup withholding, such as corporations (in most cases), might need to enter a code in the “Exempt payee code” box. The Form W-9 instructions list the exempt payees and their codes and the types of payments for which these codes should be used. Corporations filling out a W-9 for receipt of interest or dividend payments, for example, would enter code “5.”
2. Payees that are exempt from reporting under the Foreign Account Tax Compliance Act (FATCA) might need to enter a code in the “Exemption from FATCA reporting code” box. Neither of these boxes will apply to the typical independent contractor or freelancer.
Step 5: Provide your street address, city, state and zip code. What if your home address is different from your business address? Which address should you provide on form W-9? Use the address that you will use on your tax return. For example, if you’re a sole proprietor who rents office space, but you file your tax return using your home address, enter your home address on form W-9 so the IRS won’t have trouble matching your 1099s with your 1040 form.
Step 6: In this optional step, you can provide the requester’s name and address. You might want to fill out this box to keep a record of to whom you provided your tax identification number.
Step 7: The IRS calls this section Part I, which has to make you wonder what all those steps you just completed were. Here, you must provide your business’s tax identification number, which will either be your individual Social Security number (SSN) if you’re a sole proprietorship, or your employer identification number (EIN) if you’re another type of business. Now, some sole proprietorships also have EINs, but the IRS prefers that sole proprietors use their SSNs on form W-9. Again, doing so will make it easier to match any 1099s you receive with your tax return, which you will file under your SSN.
What if your business is new and doesn’t have an EIN? You can still fill out form W-9. The IRS says you should apply for your number and write “applied for” in the space for the TIN. You’ll want to get this number as quickly as possible because, until you do, you’ll be subject to backup withholding. You can apply for an EIN at the IRS website. See the instructions below for Step 8, Part II, for more on backup withholding.
Step 8: In Part II, you must attest to the truthfulness of all of your information before you can sign form W-9. Intentionally lying on a tax form could mean you’ll have to pay a fine or go to jail; the IRS doesn’t mess around. Before signing form W-9, here are the statements you must certify are true, under penalty of perjury:
1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me).
If you were thinking about using a “borrowed,” stolen or made-up tax ID number, think twice before lying under oath.
2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
Most taxpayers are exempt from backup withholding. If you have no idea what the IRS is talking about here, you’re probably exempt. If you aren’t exempt, the IRS will have notified you, and the company paying you needs to know because it is required to withhold income tax from your pay at a flat rate of 28% and send it to the IRS. Incidentally, now you know another good reason not to cheat on your tax return: You might have to tell a future client about it, and that might make the company think twice about you. Item (c) basically says that if you were once subject to backup withholding but aren’t anymore, no one needs to know.
3. I am a U.S. citizen or other U.S. person.
If you’re a resident alien, you’re in the clear. The IRS also considers the following to be a “U.S. person”: a partnership, corporation, company or association created or organized in the United States or under the laws of the United States; a domestic estate; and a domestic trust. If your business is a partnership that has a foreign partner, special rules apply; read about them in the instructions to form W-9. If you aren’t a U.S. citizen, you may need to fill out form W-8 or form 8233 instead.
4. The FATCA code(s) entered on this form (if any) indicating that I am exempt from FATCA reporting is correct.
You probably won’t need to worry about this one, which has to do with the Foreign Account Tax Compliance Act.
A Few More Points Before You Sign
Form W-9 tells you to cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return.
You may cross out item 2 if you’re filling out form W-9 in connection with a real estate transaction. Item 2 doesn’t apply in this case, so it doesn’t matter if you’re subject to backup withholding.
Now, if you read the fine print in the W-9 instructions carefully, it seems to indicate that most people aren’t required to sign this form at all. You’re generally only required to sign it if the IRS has notified you that you previously provided an incorrect TIN. Technicalities aside, however, the person who asked you to fill out form W-9 will probably consider it incomplete or invalid if you haven’t signed it, and good luck trying to convince them otherwise.
Returning the Form
Return your completed form W-9 to the business that asked you to fill it out. Ideally, you’ll deliver it in person to limit your exposure to identity theft, but this method often isn’t practical. Mail is considered relatively secure. If you must email the form, you should encrypt both the document and your email message and triple check that you have the recipient’s correct email address before sending your message. Free services are available online to help you do this, but check their reputations before trusting your documents to them.
The Bottom Line
Providing accurate information on your form W-9 will help ensure that payments you receive – or other transactions that require this form – are properly reported to the IRS. If you're unsure of some items, such as the proper classification of your business, check with your accountant or other financial adviser.