How to Complete IRS Form W-9
Tax Filing for Independent Contractors
Form W-9 is not something you generally have to worry about unless you're an independent contractor, consultant, or another self-employed worker. You may be asked to complete IRS W-9 form if you or your business are contracted to provide services to another company. The company then uses the information you provide on the form to prepare Form 1099-MISC, reporting to the Internal Revenue Service the amount of income that is paid to you or your company.
You might also be asked by your bank or other financial institutions to complete Form W-9 so they can prepare various types of 1099 forms to report interest, dividends, and other types of income you earned to the IRS. You might even be asked for one when you're opening an account.
And, of course, if you or your company pay independent contractors or consultants, you'll have to deal with the intricacies of Form W-9 as well. Fortunately, they're not complicated.
Where to get Form W-9?
In most cases, the business or financial institution will give you a blank Form W-9 and ask you to complete it. Otherwise, if you or your company is in the position of having to issue Form W-9s to independent contractors, you can download the form from the IRS website.
Filling out Form W-9
Completing Form W-9 is pretty straightforward. Just provide your name and Social Security number. Businesses should indicate their name and their employer identification number on there. When you submit Form W-9, you're certifying to the IRS that the tax ID number you're providing is correct and accurate.
Warning Signs to Be Aware Of
Form W-9 is a standard tax document. By itself, it doesn't pose many problems, but there are a few situations that might wave a red flag:
- You don't know the person or business that's asking you to fill out the W-9. You should always exercise caution when giving out sensitive information like your name, address, Social Security number, or employer identification number. Make sure you know who is asking you to fill out the form, why they’re doing so, and how tax information you supply will be used.
- Be sure to send the W-9 securely. Don’t send your completed W-9 as an unsecured or unencrypted email attachment. Use a secure method of delivery, such as hand delivery, mail, or an encrypted file attachment to an email.
- Ask what types of tax documents the requester intends to provide to you. If you are unsure why you’re being asked to complete a W-9, ask what types of tax documents you can expect to receive when the information is used.
- You expected a Form W-4 instead. If you're starting a new job and your new employer hands you a W-9 to fill out, ask if you’ll be working as a self-employed independent contractor or as an employee. Employees complete Forms W-4 to set their tax withholdings. Self-employed persons don't have taxes withheld from their pay—they're responsible for making payments to the IRS on their own.
- If your LLC is its own separate tax entity, such as a partnership, C-corporation or S-corporation, report the name of the LLC and its federal employer identification number on the Form W-9. Check the appropriate tax classification box, indicating whether you are a partnership, C-corporation or S-corporation. Do not check the limited liability company box. This sounds counterintuitive, but it's what the IRS says in its instructions.
- If the LLC is owned by another LLC, you would then check the limited liability company box. You must also indicate the tax classification of the parent LLC.
- If the LLC is owned by a single member, indicate the tax classification of the owner.
- If the LLC is owned by a single member who is a person, the IRS instructs that you must indicate the name of the owner on the “name” line and the name of the LLC on the “business name line.” The IRS prefers that you report the owner's Social Security number instead of the LLC's federal employer identification number.
Tips If You’re Subject to Mandatory Backup Withholding
You must also certify on Form W-9 whether you are subject to backup withholding. This is withholding at a flat rate of 28 percent on payments made to you or your business under certain circumstances. There are two common reasons for backup withholding: Your name and SSN don't match IRS records, or you have one or more outstanding tax debts and the IRS has notified you that you are subject to mandatory backup withholding until these taxes are paid in full.
Most taxpayers are exempt from backup withholding, but if the IRS has notified you that you are subject to it, you must strike out the language in bullet point #2 in the certification area. This section reads:
"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."
Answers to Commonly Asked Questions
How often should I update a Form W-9?
You should submit a new Form W-9 whenever your information changes. Fill out a new W-9 if your name, business name, address, Social Security number, or employer identification number have changed.
I received a W-9 from an unlikely source. What should I do?
Some people have received requests for Form W-9 from landlords and other people or businesses. Form W-9 is used to officially ask a person or business to provide their name, address, and taxpayer identification number so the requesting party can properly issue tax documents to the IRS. In general, any business that pays you interest, dividends, non-employee compensation, or other types of reportable income will probably request Form W-9, so it seems unlikely that a landlord would ask you to complete one.
If you receive a W-9 from an unlikely source who you don't expect will be paying you money for any reason, ask why it's needed. Don't complete it and submit it if you have misgivings, at least not without consulting with a tax professional first.
I received a W-9 from my employer. What should I do?
If you are or were being treated as an employee with a regular paycheck and your employer suddenly asks you to fill out a Form W-9, this indicates that your employer now wants to treat you as an independent contractor. This can be a rather sticky situation. On one hand, there are some legitimate reasons why you might become an independent contractor rather than an employee. On the other hand, employers sometimes run into financial difficulties and can no longer afford to pay their half of payroll taxes.
If you get a W-9 from your employer, first ask yourself whether you are an employee or an independent contractor. If you think you're an employee and cannot reach a consensus after talking with your employer, you can ask the IRS to make a determination of your work status. Of course, your employer might not appreciate this, but it's better to be safe than sorry. If your employer reclassifies you as an independent contractor, you become responsible for paying his half of payroll taxes as self-employment tax.