Hey, small business owners! Let’s talk about a form you’ve probably seen a lot but might still have questions about: the W-9. If you’ve ever hired a freelancer or contractor, you know that a W-9 is essential—but do you know why or how to handle it correctly? No worries; we’ve got you covered. Here’s a straightforward guide to understanding and filling out W-9s.
What Is a W-9, Anyway?
Simply put, a W-9 is a form provided by the IRS that helps you gather essential tax information from freelancers, contractors, or other non-employees you pay over $600 in a tax year. This form allows you to get their legal name, business type, and Taxpayer Identification Number (TIN) so that you can report what you paid them at tax time.
In other words, the 1099 is what the IRS tracks, but the W9 allows you to file the 1099 correctly. Without it, you risk getting hit with penalties for unreported income—definitely not a good look.
Why Do You Need a W-9?
If you’re paying someone who isn’t on your regular payroll (think: professional services like designers, consultants, lawyers, contractors), the IRS expects you to report those payments. That’s where the W-9 comes in. With it, you’ll have all the details you need to send them a 1099 at tax time. And, heads up—if you’re not collecting W-9s from contractors, you’re setting yourself up for some tax-season headaches.
Bottom line: The W-9 helps you stay compliant and avoid penalties. It’s quick to fill out, so don’t skip this step!
When to Request a W-9
Request a W-9 before you pay anyone who isn’t an employee of your company. This way, you’re set up for success from the start. Plus, contractors appreciate it when you’re on top of your paperwork game—it shows you’re a pro!
Here’s a good rule of thumb: include the W9 as the last page of the contract they sign with you. Whether that is a subcontractor agreement or an engagement prepared by them, filling it out as part of the “contract signing” stage has everyone in the right mindset of dotting i’s, crossing t’s, and ensuring you are ready to work together. Remember, it’s always better to have a W-9 on file and NOT need it than to not have one and be panicking when you are asked to produce one by the IRS. Further, by proactively providing your W-9 (when required), you look like a rockstar.
How to Fill Out a W-9 (Step-by-Step)
Most of the time, it’s the contractor’s responsibility to fill out their W-9 and give it to you. But hey, we know there can be confusion, so here’s a quick walkthrough:
- Line 1: Name
This is where they write their legal name as it appears on their tax return. If they’re a sole proprietor, this will just be their name. - Line 2: Business Name
If the contractor has a business name or DBA (Doing Business As), it goes here. Otherwise, they can leave it blank. - Line 3: Federal Tax Classification
Here, they’ll check the box that describes their business type (individual, partnership, corporation, LLC, etc.). Pro tip: there is no LLC tax form with the IRS – they must either file as a sole proprietor/disregarded entity, partnership (more than one owner), or corporation. If they’re a single member LLC who has not elected to file as an S-Corp, , they should check the box for Individual/Disregarded Entity - Line 4: Exemptions
Most for-profit small businesses can skip this section. It’s mainly for certain corporations and government agencies that are exempt from backup withholding. - Line 5 & 6: Address
This is the contractor’s address, which will appear on the 1099 form you send them. Make sure it’s current. - Part I: Taxpayer Identification Number (TIN)
Here’s the essential part! If they’re an individual or sole proprietor, they’ll use their Social Security Number (SSN). If they’re a business entity, they’ll enter their Employer Identification Number (EIN). - Part II: Certification
This is the signature part. By signing and dating the form, the contractor certifies that the information is correct. This is crucial because it confirms their TIN is accurate.
That’s it! Once the contractor completes and signs the W-9, keep it on file. You’ll need it for your records but don’t send it to the IRS (you’ll only use the info on it when it’s time to file a 1099). The IRS requires this form to be retained for 4 years after your taxes are filed.
Common W-9 Mistakes to Avoid
Even though the W-9 is a simple form, there are a few mistakes to watch out for:
- Skipping the TIN: Without a TIN, you can’t file a 1099, which could lead to penalties.
- Incorrect Federal Tax Classification: Make sure the contractor checks the correct box in Line 3.
- Outdated Address: Double-check that the address is current, so the 1099 reaches them.
Hill Bookkeeping’s Pro Tips for W-9s
- Collect W-9s Early
Don’t wait until tax season to request W-9s—get them on day one of working with a new contractor. This keeps everything streamlined when it’s time to file. - Go Digital
Use a secure platform to store your W-9s digitally. This way, you’ll have them handy without stacks of paperwork. We can recommend a few options if you need help setting this up! HBC clients have access to W9 collection via their secure client portal. - Verify Information
Double-check the info provided, especially the TIN and tax classification. Simple errors can turn into tax headaches later. - What happens if you don’t collect the W9: 1. you are not able to file a 1099, and 2. the IRS requires you to collect and remit 24% backup withholding. That is, if you owe a contractor payment and they refuse to provide you with a W9, you are required by law to withhold 24% of their payment and remit that to the IRS. No one likes dealing with it, but it’s a great incentive to help you collect W9s up front and stay on top of all your obligations as a business owner.
Wrapping Up: W-9s Made Simple
Collecting W-9s is one of those little steps that keeps your business running smoothly. It’s straightforward, but it plays a big role in staying compliant and avoiding unnecessary fines. And if you’re feeling lost on all things tax forms, don’t worry—we’ve got your back at Hill Bookkeeping & Consulting.
Remember, if you’re ever unsure, reach out to us! We can help you understand the ins and outs of tax forms and keep your business in tip-top shape.
