What is a W-9?
The W-9 IRS Form is used by a Company when hiring an independent contractor to gather necessary details for the purpose of issuing the independent contractor a 1099-MISC tax form for payments made to the independent contractor during the year. If the Independent Contractor will be paid less than $600.00 for his or her services during the year, then the W-9 is not required since the Company will not be required to issue a 1099-MISC tax form to the independent contractor. The Company should provide the independent contractor with the W-9 form as part of the on-boarding process and require the independent contractor to input all necessary details and return the completed W-9 form to the Company.
Upon completion of the W-9, it is NOT required to be submitted to the IRS by either the Company or the independent contractor. Instead, the W-9 should be kept in the Company’s files for four years in the event the IRS has any questions regarding the form and most importantly for preparing the 1099-MISC tax form for the independent contractor’s compensation.
It is important to remember that a W-9 is different than a W-4. A W-4 is used when hiring employees, which requires the business to withhold taxes and to pay Medicare/Social Security taxes.
What is a 1099?
Tax Form 1099-MISC is only required when the Company (payer) makes payments to the independent contractor that exceed $600.00 throughout the tax year. The Company shall first prepare the 1099-MISC tax form using the information that was previously gathered on the W-9. After completing the 1099-MISC tax form, two more steps are required:
If you fail to file a correct 1099 information return with the IRS by the due date and you cannot show reasonable cause, you may be subject to a penalty of $50.00 penalty per form and may also be subject the Company to backup withholding. Backup withholding allows for the payor to withhold 28% of the check with the proceeds being forwarded to the IRS. If backup withholding does not apply, then the Company may be penalized $500.00 per incident.
You should also verify the information you have on file, such as names, addresses, and Social Security or individual taxpayer identification numbers. You should also ensure their company’s account information is current and active with the Social Security Administration before January.
Not sure what to do? Contact your CPA or reach out to us and we can help put you in contact with one.
This Blog was written by the Hunter Business Law Team.
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