IRS forms are confusing at times, and when they have similar alphabet-numerical names, the confusion can increase tenfold. A W-9 and a W-2 are two such forms that often need a bit of clarification. While both W-9 and W-2 forms are related to taxing different types of income, this is largely where the similarity ends. W-9s are filled out by self-employed taxpayers or independent contractors, and W-2 forms are completed by employees.
Self-Employed or Employee?
First, in order to understand the differences between a W-9 and a W-2, you need to know the difference between how the IRS taxes people who are employees, and those who are self-employed contractors. When you’re self-employed, no employer withholds Social Security, Medicare or income taxes from your pay as is done for employees. You are responsible, typically quarterly, for paying these taxes on your own. Although independent contractors and employees often perform the same tasks and duties – frequently alongside one another – they are two very different entities.
For tax purposes, the IRS has several criteria to differentiate the two. These criteria come down to the degree of control and independence in three key areas: behavioral, financial and type of relationship. Independent contractors have more autonomy in how their job is done, and are responsible for more or all of the daily operations of their business. The more control you have over your work, the more likely you’re self-employed. If you’re unsure whether or not you’re an employee, or you feel you have been erroneously classified as one or the other, then you or your employer can fill out and submit IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and the IRS will make this determination for you.
Who Fills out a W-9?
W-9s are given to an independent contractor by a payer at some point during the course of doing business. IRS Form W-9, Request for Taxpayer Identification Number and Certification, is generally given to someone a business hires as an independent contractor. If you’ve received a W-9, the business paying you considers you an independent contractor. This form requests your taxpayer identification or Social Security number, your address, federal tax classification and other information. A similar form filled out by employees is the W-4. This form lets your employer know how much to withhold in mandatory payroll deductions from each paycheck, and is not filled out by independent contractors or freelancers.
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Do Freelancers or Independent Contractors Receive a W-2?
IRS Form W-2, Wage and Tax Statement, details what wages an employee has earned, and how much in taxes were withheld from his pay for the year. Because independent contractors do not have taxes withheld from any money they receive, they will not receive a W-2. Only employees receive a W-2, and the employee then takes the information from his W-2 to file his taxes. Employers are required to send this form to employees by January 31 of the new year, so taxes can be filed in April.
Independent contractors should receive an IRS Form 1099-MISC, Miscellaneous Income, when they receive more than $600 in earnings from a particular payer. Sometimes, payers will neglect to send you a Form 1099-MISC, however, you are still responsible for paying taxes on this income. Employees do not receive a 1099-MISC at the end of the year from their employer because their wages are not considered miscellaneous income. Instead, employees receive a W-2 that details their end of year earnings and taxes withheld.
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