If you are a freelancer or contractor, you are likely to be asked to fill out a W-9 tax form. A W-9 is a form provided free of charge by the Internal Revenue Service for use between contractors and clients to establish taxpayer information in an effort to accurately report payments and earnings at the end of a tax year.
The Purpose of a W-9
The IRS developed the W-9 as an efficient way to secure taxpayer information for the purposes of reporting income. Companies that choose to outsource specific tasks to contractors or freelancers need the information provided on W-9s to accurately report to the IRS amounts paid to these contractors on a form 1099 at the end of the tax year. Freelancers and contractors are not standard employees and do not have employment taxes removed from their earnings. They use the form 1099 when completing their income tax return.
The information requested on a W-9 is fairly basic. The form requires a name, a current address, a tax classification, a taxpayer identification number and a signature. The name can be that of an individual or of a business. The taxpayer classification determines whether a W-9 is being submitted on behalf of an individual, a sole proprietor, a partnership, a corporation, a trust or estate. The taxpayer identification number is either a Social Security number or an employer identification number, depending on whether the freelancer or contractor is acting as a individual or as a business.
Who Asks for W-9s
Outsourcing companies request W-9s from all their contractors and freelancers. An outsourcing company is one that hires contractors to perform specific tasks; usually these tasks are ones that are out of the realm of knowledge or capability of the company's in-house employees. Occasionally a financial institution or broker might request a W-9 from people who are expected to earn money from stock and securities trades or are receiving interest income from their investments. Casinos will also request a W-9 to report winnings.
The end result of submitting a W-9 is receiving a form 1099. All the information provided to a business on a W-9 helps that business in completing the 1099 earnings reporting form. Whether the earning are derived from contracted work, gambling or investments, they are all forms of income and are required to be reported to the IRS. The 1099 is also distributed to those who have earned the monies so that they can pay the taxes due on that income.
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