What's a W-9 and Why Do I Need One from My Vendors?
A W-9--- or more formally, Request for Taxpayer Identification Number and Certification (wow, that's a mouthful!) -- is a form you'll need from independent contractors so you can report payments to them in January. (Or, if you are an independent contractor yourself, you'll no doubt be asked to provide one to your client at some point.)
If you hire independent contractors (also called freelancers) you'll need them to fill out a W-9 form, which provides information like their legal name (or business name), legal address, and tax ID (which is often their social security number). You can download the form and instructions from the IRS website here.
Important note:
If a sole proprietor, the vendor can provide either an employer tax identification (EIN) number or a social security number. LLC's have different requirements--- more on that below.
You'll then use the information on the W-9 when you issue a form in January, called a 1099-MISC, which reports all payments made to the vendor during the prior year.
It is our strong recommendation that you obtain a W-9 from an independent contractor before issuing them their first payment.
Why? It's much easier to get a vendor to submit a W-9 if they're motivated to get their invoice paid. And waiting until the end of the year to get W-9 forms from your independent contractors can mean big headaches and a lack of response from many.
Be sure to provide a way for contractors to submit W-9's securely. These forms contain sensitive information like addresses and social security numbers so you don't want them falling into the wrong hands.
If the vendor reports they are a sub-S or a C corporation, you do not need to issue them a 1099-MISC in January.
Also, if you paid the vendor less than $600, you don't need to issue one either.
Important note:
Here's the trick, LLC's can file taxes as a single-member, a partnership, or a corporation. (They can check a box on form W-9 to indicate how they file.)
If the LLC files as a partnership or single-member (also called a 'disregarded entity'), you will need to issue the vendor a 1099-MISC. (And the vendor should use a social security number vs. the entity's EIN.)
Here's the rule of thumb: if the LLC files as a corporation, then no 1099 is needed.
Businesses don't withhold income tax or pay employer taxes on payments to independent contractors, so contractors are responsible for these obligations instead.
The IRS wants to know how much contractors are paid each year so they can track whether the freelancer has reported all their income and paid the appropriate taxes.
Businesses who fail to file 1099-MISC forms for qualifying independent contractors could face fines (anywhere from $30 to $100 per form). And businesses who intentionally ignore 1099-MISC filing requirements could be subject to a minimum penalty of $250 per form (with no maximum).
If all of this seems a little overwhelming, you're not alone. While a fairly simple process, obtaining W-9 forms and tracking independent contractors in accounting software can mean a significant time investment depending on how many freelancers you typically pay each year.
The Business Builders has helped many clients obtain and track W-9 forms over the years, and we're happy to file 1099-MISC forms for our clients in January. If you think you might need this service, give us a call--- we'd love to talk!
What Information Does a W-9 Provide?
If you hire independent contractors (also called freelancers) you'll need them to fill out a W-9 form, which provides information like their legal name (or business name), legal address, and tax ID (which is often their social security number). You can download the form and instructions from the IRS website here.
Important note:
If a sole proprietor, the vendor can provide either an employer tax identification (EIN) number or a social security number. LLC's have different requirements--- more on that below.
You'll then use the information on the W-9 when you issue a form in January, called a 1099-MISC, which reports all payments made to the vendor during the prior year.
It is our strong recommendation that you obtain a W-9 from an independent contractor before issuing them their first payment.
Why? It's much easier to get a vendor to submit a W-9 if they're motivated to get their invoice paid. And waiting until the end of the year to get W-9 forms from your independent contractors can mean big headaches and a lack of response from many.
Be sure to provide a way for contractors to submit W-9's securely. These forms contain sensitive information like addresses and social security numbers so you don't want them falling into the wrong hands.
Who Should Receive a 1099-MISC in January?
If the vendor reports they are a sub-S or a C corporation, you do not need to issue them a 1099-MISC in January.
Also, if you paid the vendor less than $600, you don't need to issue one either.
Important note:
Here's the trick, LLC's can file taxes as a single-member, a partnership, or a corporation. (They can check a box on form W-9 to indicate how they file.)
If the LLC files as a partnership or single-member (also called a 'disregarded entity'), you will need to issue the vendor a 1099-MISC. (And the vendor should use a social security number vs. the entity's EIN.)
Here's the rule of thumb: if the LLC files as a corporation, then no 1099 is needed.
Why Do I Need to 1099 My Independent Contractors?
Businesses don't withhold income tax or pay employer taxes on payments to independent contractors, so contractors are responsible for these obligations instead.
The IRS wants to know how much contractors are paid each year so they can track whether the freelancer has reported all their income and paid the appropriate taxes.
Businesses who fail to file 1099-MISC forms for qualifying independent contractors could face fines (anywhere from $30 to $100 per form). And businesses who intentionally ignore 1099-MISC filing requirements could be subject to a minimum penalty of $250 per form (with no maximum).
Getting Help
If all of this seems a little overwhelming, you're not alone. While a fairly simple process, obtaining W-9 forms and tracking independent contractors in accounting software can mean a significant time investment depending on how many freelancers you typically pay each year.
The Business Builders has helped many clients obtain and track W-9 forms over the years, and we're happy to file 1099-MISC forms for our clients in January. If you think you might need this service, give us a call--- we'd love to talk!