Businesses use IRS Form W-9, Request for Taxpayer Identification Number and Certification, to get information from vendors they hire as independent contractors (also called freelancers). When a business pays a contractor $600 or more during a tax year, it has to report these payments to the Internal Revenue Service (IRS), using an information return called Form 1099-MISC. Businesses use the name, address and Social Security number or tax identification number contractors provide on Form W-9 to complete that information return. Neither the sender nor the recipient should send a copy to the IRS.
Businesses that hire independent contractors do not withhold income tax or pay Medicare or Social Security taxes for their independent contractors, as they do for their employees. Instead, contractors are responsible for these obligations. However, the IRS still wants to know how much these contractors received to make sure they pay the taxes they owe, and it uses form 1099-MISC to gather this information. Businesses do not send Form W-9 to the IRS.
Information Needed on Form W-9
Form W-9 asks for the independent contractor’s name, business name (if different), business entity (sole proprietorship, partnership, C corporation, S corporation, trust/estate, limited liability company or “other”) and the business’ tax identification number (or Social Security number, for sole proprietors who don’t use a separate tax ID number).
Form W-9 also asks the person filling it out to certify that they are not subject to backup withholding. Most taxpayers are not, but if they are, the company hiring the independent contractor will need to withhold income tax from that contractor’s pay at a flat rate of 24% (for tax years 2018-25) and send it to the IRS.
As Form W-9 requires listing a tax ID or Social Security number, both the person filling it out and the company receiving the completed form must guard it carefully during transmission and after receipt to protect against identity theft.
When You Shouldn’t Fill Out a W-9
An independent contractor who receives an unexpected W-9 should hesitate before filling it out and research whether the requester has a legitimate reason to ask for this form. Financial institutions sometimes use Form W-9 to request information from a customer when they need to report dividends or interest. Be careful here: The financial institution should probably already have your tax ID number from when you opened the account.
Another situation in which you should hesitate before filling out Form W-9 is if the company asking you to do so is your employer and you are supposed to be classified as an employee, not an independent contractor. The difference is substantial.
The Purpose Of The W-9 Form
Employee or Independent Contractor?
If you’re an employee, your employer will withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on your wages. If you’re an independent contractor, it won’t. That means you’ll be responsible for the employer’s share of Social Security and Medicare taxes, and that you won’t be eligible for unemployment compensation if you are laid off.
An unscrupulous or financially struggling employer might try to classify an employee as an independent contractor to save money. If you’re classified as an independent contractor, your employer’s tax “savings” will come out of your pocket as self-employment tax. You’ll also become responsible for calculating and paying your own estimated taxes four times a year and filling out Schedule C when you file your annual tax return.
It isn’t always clear whether a worker is an employee or independent contractor, but in general the more control the business has over what workers do and how they do it, the more likely it is that they are employees. If your Spidey sense starts tingling when someone who hired you calls you an independent contractor, that’s a good sign you should investigate the situation further. Start by reviewing the IRS discussion of the difference between the two. If you’re an employee, you should fill out Form W-4, not Form W-9.
Here’s an example of when an employer could legitimately change your status from employee to independent contractor. You’re a computer programmer and you’re required to come into the office from 9 a.m. to 6 p.m., Monday through Friday. The company provides your desk and your computer.
Starting next month you will be required to provide your own computer. You will be able to work from home or whatever remote location you want, and you can complete the work during any hours you want, as long as your assignments are completed on schedule and you respond to work-related phone calls and emails in a timely manner.
How do I know if I am subject to backup withholding?
Has the IRS sent you a letter telling you that you are subject to mandatory backup withholding? This might have happened if you didn’t report all your interest and dividends on a previous tax return. If you haven’t received this letter, and if you provide your tax identification number to the requester of Form W-9, then you are not subject to backup withholding. If you are subject to backup withholding, cross out item two in part two of Form W-9 before submitting it.
What’s the most secure way to submit Form W-9?
If you can hand off the document in person, that’s ideal. Otherwise, one option is to use a free online service to encrypt your completed Form W-9 and email it securely to the requester. You could also use an encrypted file-sharing service.
Another option is to send it through a service such as FedEx, UPS or the postal service, though there is no guarantee your form will not be lost, stolen or tampered with in transit.
There’s also no guarantee that the recipient will store the form securely even if you send it securely, so you might want to ask about that in advance.
Is my business an exempt entity?
If you’re a sole proprietor, it probably isn’t. If it’s a corporation, it could be, if it qualifies for IRS tax-exempt status.
I have both an employer identification number (EIN) and a Social Security number. Which number should I enter on the form?
If you are a sole proprietor, you can enter either one. If your business is an LLC classified as a corporation or partnership, use the entity’s EIN. If your business is a single-member LLC that is a disregarded entity, enter your SSN or EIN (not the entity’s EIN).
Can I refuse to fill out Form W-9?
Sure. If you refuse in response to a legitimate request, your client will withhold taxes from your pay at a rate of 24%. The accounting department might also find you a pain and tell your contact to refuse to do further business with you. Businesses have a heavy obligation from the IRS to obtain a completed Form W-9 from anyone they pay $600 or more to during the year. Failure to comply can result in fines.
If you think the person requesting the form has no business asking for it, though, refusal is probably a good idea. If you’re concerned, ask a tax professional what you should do.
Besides a client, who might ask me to fill out Form W-9?
A bank, a brokerage firm, a lending institution that has canceled a debt you owe or the issuer of a prize you have won all might ask. If you’re a guest on “Ellen” during her “12 Days of Giveaways” promotion, and the talk show producers ask you to fill out a W-9 before you leave, it’s safe to assume the request is legitimate. If you receive an email saying you won a prize for a contest you don’t recall entering, you may not want to give that person a W-9.
Beware of W-9 phishing scams. If you receive an email request for a Form W-9 and you’re not sure it’s legitimate, contact the supposed sender by phone (and don’t use any phone number in the suspicious email) to ask if the request is valid. Attackers are sophisticated and can make a message look like it came from your bank or even your client. And if you get an email from the IRS, it’s definitely a phishing attempt, and you should forward the email to firstname.lastname@example.org. The IRS doesn’t initiate contact with taxpayers via email.
The Bottom Line
W-9 forms are for independent contractors, also called freelancers. It’s important to fill out the form correctly – but only if you’re sure it’s the right form to submit and the request is legit.