If you work on your own as a self-employed individual, independent contractor or even receive certain types of interest payments or dividends you may have to get familiar with a W-9 form. In some cases you cannot proceed with a business transaction without filling out and submitting a W-9.
What Is a W-9?
A W-9 requests information about an independent contractor or recipient of other types of payments for tax reasons. Its official title is “Request for Taxpayer Identification Number and Certification.” An individual who hires independent contractors regularly will usually ask workers to fill out this form in advance of initiating a work agreement. Besides basic contracting work, the W-9 is also used to certify taxpayer identification number information for certain real estate transactions as well as interest and royalty payment arrangements. The W-9 is a one-page document requiring a signature.
What Does It Ask?
The W-9 asks for crucial identifying information about the contractor or payee for certification purposes. The basics include the person’s full name or his business name as shown on tax returns, type of entity (sole proprietor, partnership, corporation or limited liability company) and the full address. The payee must also include a Social Security number or employer identification number on the form. The form also asks for information on whether the payee is subject to backup withholding, in which the payer must withhold 28 percent of payments to the payee.
Why Is It Needed?
The requester needs the information on a W-9 to prepare a proper 1099 reporting form in case the company ends up paying the person $600 or more during the year. The requester reports this amount as a business expense while the contractor or payee reports it as income. Both parties have to keep accurate records regarding the business arrangement. In some cases the requester needs the information on a W-9 in order to process backup withholding.
United States Residents
The W-9 form is only applicable to United States residents or resident aliens who have a taxpayer identification number. If the person is foreign, he must use a W-8 form instead (Withholding of Tax on Nonresident Aliens and Foreign Entities).