No one could ever say the IRS doesn’t have enough forms. Almost every letter and number combination is covered somewhere in the IRS form library, from Form 1040 all the way to Form W2-G. Two forms that are easily confused, though, are the W-2 and W-9, which serve completely different purposes. The W-2 is the form you receive in the mail from your boss at tax time, while a W-9 is a form you submit if you’re doing independent contractor work for someone.
TL;DR (Too Long; Didn't Read)
A W-9 Form is completed by independent contractors when they start a new job. Employers send a W-2 Form to employees at tax time for the income they’ve earned during the tax year.
Difference Between W-2 and W-9
Employers are required to issue a W-2 form to every employee they pay $600 or more during a tax year. This form either comes in the mail or is hand-delivered to you early in the tax season to give you enough time to file. Your employer will send a copy to you, the Social Security Administration and to the federal and state authorities processing income tax returns. Employers also keep a copy for their own files.
A W-9, on the other hand, is a form you complete when you start working with someone on a freelance or contractor basis. This form asks for basic contact information, including your Social Security number, so that the client will have the information necessary to report your income. A W-9 status employer is not required to withhold taxes from the income paid to you, so it’s important that you track your earnings and pay quarterly taxes if you think you’ll owe $1,000 or more when you file your taxes in April.
Difference Between W-2 and W-4
When asking what is the difference between W-2 and W-9, you may also be confusing the W-2 with Form W-4, since that is the form salaried and hourly employees complete when they start a job. Just as independent contractors submit a W-9 when they start working for a client, payrolled employees are required to fill out a W-4 when they start a new job. Often this is part of basic onboarding paperwork, included along with the policies and procedures manual and IT security agreements. The W-4 authorizes your new employer to take taxes out of each paycheck and submit them to the IRS throughout the year. Once the year is complete, you’ll receive Form W-2 in the mail and use it to fill out all your IRS paperwork, where you’ll either owe a little extra money if your employer didn’t take out enough or you’ll get a nice refund if your employer took out too much.
You have some decisions to make when you’re completing your W-4. You’ll be directed to input whether you’re married or single and how many dependents you have. The important thing here is that you aren’t restricted to only the number of dependents you actually have. You can claim more or less, depending on how much you want taken out of each paycheck. If you claim more, less tax will be withheld every pay period. However, you’ll still have to pay that tax – you’ll just be paying it in April rather than throughout the year. So it’s important to try to get as close as possible to owing $0 at tax time since a big refund just means you gave the IRS an interest-free loan for a year.
When to Expect Your W-2
Technology may have changed the delivery option for W-2s, but one thing has not changed: the deadline. Employers have until Jan. 31 to either put your form in the mail or hand it to you in person. However, if you haven’t received it by mid-February, the IRS suggests first contacting your employer to remedy the situation. If that still doesn’t get results or the employer is no longer in business, you can contact the IRS and request the form.
Although the IRS requires forms to be mailed or delivered by Jan. 31, some employers are handling things automatically. Check your email or your initial onboarding paperwork and see if there are instructions for accessing your form. If you regularly log into a payroll system, your tax forms could be located there. Your employer should have let you know about this, but at least you’ll be able to print a copy of your form so you can file your taxes.
What to Do If You Don’t Receive a W-2
There may be some instances where you simply can’t get a W-2, despite your best efforts. You’re still required to file your taxes and even if you don’t receive a form, your earnings may have been reported to the IRS, so it’s important to be accurate. Pull paystubs and add up your wages and withholdings for the year, giving the best estimate you can.
You’ll input this information on Form 4852, Substitute for Form W-2, Wage and Tax Statement. This will serve as a replacement for your W-2, and you’ll use this form like you would a W-2 form as you complete Form 1040 and file it. If your form arrives after the fact and you find your calculations were incorrect, you can fix the error by filing an amended tax return using Form 1040X.
What Is the Difference Between a W-2 and a 1099?
If you worked as an independent contractor during the year, you may not receive a form at all at tax time. Employers are only required to send forms to contractors they paid $600 or more during the tax year. This does not mean that you do not have to report the earnings if you make less than that, though. If you’re paid only $100, chances are you won’t face penalties for underpaying your taxes throughout the year, but you’ll still need to report your earnings. This means you should track every dollar you make throughout the year and be prepared to report it on your taxes, just in case you don’t meet the minimum earnings required to receive a 1099.
If you reach the $600 threshold, though, you’ll get a Form 1099 in the mail in January or February. This form is similar to the W-2s you’d receive if you were on a company’s payroll. Your client will probably total your earnings under “Nonemployee Compensation.” If any taxes or medical payments were withheld, this will be listed, too, but if you’re a contractor, you’ll probably find those boxes blank. You’ll input this information on Schedule C. If you have earnings of $400 or more, you’ll need to complete Schedule SE, Self-Employment Tax, which will ensure that you have money going to Social Security and that you pay other applicable taxes.
Quarterly Tax Payments
If you work as an independent contractor, you’ll need to monitor the amount you make. If you feel that you’ll owe more than $1,000 when you file your taxes at the end of the year, you should make quarterly payments throughout the year to avoid owing penalties for underpayment at tax time. Use the Estimated Tax Work Sheet Included with Form 1040-ES to determine if you should be setting payments aside and, if so, how much.
If you are required to make quarterly payments, divide the amount on line 14a of the worksheet by four. You’ll pay that amount four times by each of the IRS’s deadlines. In mid-April, mid-June, mid-September and mid-January, you’ll remit that amount to the processing center where you send your annual tax payments. You’ll tear off the slips included with Form 1040-ES and send those with your payment, including your Social Security number on your check and on the payment slip. If your taxes are filed with your spouse and your spouse’s Social Security number is the primary one, use that number when sending your quarterly payments to avoid confusion. You should also keep a record of how much you paid and when, and you’ll get credit for these payments when you file your taxes in April.
When Is a W-9 Not Required?
Technically, if someone doesn’t pay you $600 or more, no W-9 is required. However, your client may have no idea how much he’ll pay you the first time he hires you for a job. You may do graphic design work for a client, for instance, and all he initially wants is a logo at your going rate of $60 per hour. Even if he isn’t sure whether he’ll use you for other projects yet, he may have you go ahead and complete a W-9 as part of his onboarding process. Many clients, though, will hold off until they’re sure you’ll work out before having you complete paperwork. If you reach the end of the year and still haven’t completed a W-9, this in no way releases you of your obligation to report the income you earned and pay taxes on it, even if you don’t receive a 1099.
W-9s and 1099s are designed to be issued by businesses, not individuals. If you have a babysitter who watches your children every week while you go out to dinner, you aren’t required to claim that person. The same goes for other independent contractors who personally perform services for you, such as landscapers and house cleaners. That doesn’t remove the obligation those workers have to pay taxes on the amount you pay. It just releases the hirer from the obligation of reporting the amounts paid to the IRS.
What Is the Tax Rate for W-9?
A W-9 employee pays the same taxes as the rest of the population. Those taxes simply aren’t withheld from your paycheck as they are for W-2 employees. If you’re being paid on a 1099 basis, you’ll pay a self-employment tax once you earn $400 or more, excluding any income you received from a church. Self-employment tax for church contractors kicks in at $108.28. You’ll use Schedule SE to report your income and calculate the taxes due.
As an independent contractor, you’ll pay the self-employment tax rate of 15.3 percent. This amount is a combination of Social Security tax of 12.4 percent to take care of you in your retirement years and a Medicare tax of 2.9 percent. There is a cap on that tax for six-figure earners. Under the new tax laws, you’ll only pay the Social Security tax on the first $128,400 of your yearly earnings. But you’ll pay the 2.9 percent Medicare tax on the full amount, no matter how much you make.
Deductions for W-9 Workers
If you’re an independent contractor, the good news is that you can deduct some expenses to help reduce the amount of income subject to income taxes. Primary of these is the cost of your health insurance, provided you aren’t covered by another policy. For instance, if you receive medical coverage from your spouse’s employer, you won’t be able to take this deduction. Qualifying self-employed taxpayers can deduct 100 percent of their medical insurance premiums for themselves, their spouses and their dependents.
In addition to health insurance, you can also claim any medical costs and charitable contributions on the personal side. This is in addition to itemized deductions such as the portion of phone and internet you use for business, travel costs, half of any business-related meals, publications, membership dues and education, among many others. If you work from your home, you can claim the cost of your office. You can measure out the portion of your home and calculate that portion you spend on your mortgage and utility costs. However, the easiest way is simply to take the IRS simplified option of multiplying your square footage by $5, with a maximum of 300 square feet.
- NerdWallet: How Estimated Quarterly Taxes Work
- NerdWallet: Form W-4: What It Is and How to Fill It Out in 2018
- IRS.gov: Haven’t received your Form W-2 yet? The IRS can help
- The Law Dictionary: Do We Need To Give Our Babysitter A 1099 Tax Form?
- Investopedia: 10 Tax Deductions & Benefits for the Self-Employed
- NOLO: The Self-Employed Health Insurance Deduction: A Valuable Personal Deduction