When it comes to taxes, working as a full-time employee of a company is typically a fairly straightforward process. The employer takes out a percentage of wages before a paycheck reaches the employee. Working as a contractor, freelancer, or vendor, however, is a different situation. While the process isn’t necessarily difficult, it does involve steps that may be new to an individual. Read on to learn more about how to fill out the Form W-9 and why the step is necessary for a smooth tax season for contractors, freelancers, and vendors.
What is Form W-9?
When an employer hires a contractor, freelancer, or vendor, it is not obligated to withhold any taxes from the wages paid out over the course of the work that’s completed. Instead, it’s the responsibility of the contractor to correctly withhold — and pay — the appropriate percentage of tax over the course of a calendar year. Form W-9 is part of this process.
Form W-9 is a federal tax form that serves several purposes. First, it acts as an agreement that the employer is not responsible for withholding taxes on wages paid — the contractor is.
Next, Form W-9 is a request from the employer for a contractor’s Taxpayer Identification Number (TIN) and Certification. An employer uses this information to file a 1099-MISC at the end of the year which is then used in turn by the employee to file taxes. A breakdown of TIN and Certification is farther down in this article, but here’s the basic list of approved TIN.
Taxpayer Identification Numbers
- Social Security Number — SSN
- Employer Identification Number — EIN
- Individual Taxpayer Identification Number — ITIN
- Taxpayer Identification Number for Pending U.S. Adoptions — ATIN
- Preparer Taxpayer Identification Number — PTIN
Who Needs to Fill Out Form W-9?
Contractors, freelancers, and vendors who are not full-time employees of an employer and who have made more than $600 in earnings over the course of a tax year are required to complete Form W-9. Typically, employers will send a contractor a Form W-9 before any work begins, but blank forms are also available on the Internal Revenue Service’s website.
Form W-9s are not tracked by the IRS, and that means they are not submitted to the IRS. Instead, contractors send a particular Form W-9 to the employer that issued it. The form helps an employer keep track of their freelance workforce.
This structure means that a contractor may need to submit multiple Form W-9s for multiple employers. A change of address, business name, personal name, or TIN are all also situations in which a contractor must submit new Form W-9s.
Do You Need to Fill Out a Form W-9?
If you fit these criteria, you submit Form W-9 to an employer:
- You are a contractor, freelancer, or vendor for an employer, NOT a full-time employee
- You’ve made more than $600 in contract earnings from an employer over the course of a tax year
- You’ve changed your name, business name, address, or TIN
How to Fill Out Form W-9
- Most of the information required on Form W-9 is basic and won’t be difficult to understand. Simple identification information such as an individual’s name, business name (if applicable), and address are all straightforward. There are, however, some sections of the form that may be new.
Line 3 — Federal Tax Classification
Even though this section is simply checking one of seven boxes, understand which of those boxes to check can sometimes be confusing. In this line, the contractor is declaring how they are filing their taxes.
In many cases, the first box — Individual/Sole Proprietor of Single-Member LLC — will be checked. If the box is checked because the entity filing the W-9 is an LLC, the “Limited Liability Company” box below it must also be checked along with a letter designating what type of LLC it is:
- C Corporation
- S Corporation
If the contractor filing is one of those designations completely, the appropriate other box should be checked:
- C Corporation: A corporation in the United States that, for Federal income tax purposes, is taxed under and Subchapter C ( et seq.) of Chapter 1 of the Internal Revenue Code. A C corporation may also be subject to a separate Federal income tax called the Alternative Minimum Tax.
- S Corporation: A US corporate structure where the income of the firm is passed to the stockholders in a proportion to their investment and taxed at rates of personal income tax.
- Partnership: To prevent liability as a partner for the negligent acts caused by any other partners or anyone else not under his or her command, one enters into this type of US partnership.
Line 3 — Taxpayer Identification Number (TIN)
If the Form W-9 is being filed as an individual or single-member LLC, that person’s Social Security number is typically used for the TIN. If the Form W-9 is being filed as a multi-member LLC designated as a corporation or partnership, that entity’s employer identification number (EIN) is used instead.