You should have a W-9 form on file for anyone that did any work for your company — except for your company employees. Think freelancers, contractors, and vendors. The IRS requires that you have these forms on file before you pay someone. If you get caught without one, you could get a fine.
The forms change every couple of years, and your contractors’ information might have changed too. That’s why we at MGA recommend obtaining new W-9 forms at the beginning of every year from all of your vendors. Don’t wait until January when 1099s are due. Keep this information on hand and up-to-date at all times. Not only will this keep you compliant with the IRS, but it will also save you the hassle of trying to track down this information in January when you’re on a tight deadline.
If you’re unfamiliar with the W-9, you might be wondering if you should be preparing this form for your payments or if you should be asking for one from your vendors. What is it, and why do you need it? Here is everything you need to know.
What is the W-9 form?
We like to think of the W-9 form as the sister to the W-4 form.
If you have company employees, they should fill out a W-4 before they begin working for you. Likewise, if you have vendors or contractors, they should fill out a W-9 before they begin working for you. The main difference between the two is that a W-4 form states how much taxes should be withheld from your employee’s paycheck. When it comes to independent contractors, you would not usually withhold taxes from their pay. By obtaining a W-9 from your contractors, you’re ensuring that the person you are working with is reporting and paying the appropriate income taxes to Uncle Sam, which, most importantly, is required by law.
A W-9 is NOT sent to the IRS but is used to complete the 1099 which IS sent to the IRS.
A W-9 form is used to gather information for the IRS about taxable entities, such as independent contractors and freelancers. It’s not used to collect taxes, but rather, to provide information so that a 1099 can be completed at the end of the year. A 1099-MISC form is a form that a business has to file if they’ve paid an independent contractor to do any type of work for them. They will use the information provided on the W-9 to complete the 1099 when tax time rolls around.
Who needs to complete a W-9?
W-9s are required for independent contractors who are earning more than $600 from a company for labor and services. Independent contractors generally do not receive benefits from employers, pay all of their own taxes, and have control over their work schedule. Some examples may include graphic designers, landscapers, architects, accountants, custodians, consultants, and writers.
When in doubt, fill it out
From a consumer standpoint, asking for a W-9 from your business relationships will protect you from any funny business, like paying illegal vendors. From a provider standpoint, giving your customers a W-9 before performing any services shows them that you are a trustworthy business and safe to work with.
This is an easy area for the IRS to attack businesses on compliance and revenue. If you’re not sure about a particular situation, use the form. It’s better to have it on hand and not need it than to need it and not have it. If you don’t have a W-9 on file for someone who is already doing work for you, a good practice is to tell them you will provide payment once you receive a W-9.
If you have any further questions or concerns about the who, what, when, or why of W-9s, please don’t hesitate to ask your team here at MGA.