Both W-9 and 1099s are types of information returns the IRS requires to collect information about the contractor working for a business for tax reporting purposes. However, there is a big difference between Form W-9 and Form 1099 - W-9 is filled by the independent contractor to provide information to the business they're providing the service for. After that, the business hiring and paying independent contractors (more than $600 within a tax year) will use this information when reporting on a Form 1099-NEC (formerly reported in Box 7 of the 1099-MISC, Miscellaneous Income).
Whether you are working with an independent contractor, or are a contract worker yourself, it is important to know which tax forms you need and how to properly file or collect them. Unlike full-time employees, a self-employed person or a freelancer doesn't have tax withholding applied to their paychecks. They need to fill out special tax documents and forms in order to report their income and calculate their own taxes.
What is IRS Form W-9?
Form W-9, Request for Taxpayer Identification Number and Certification, is an IRS form that is sent by the client (or a financial institution) to the independent contractor based in the United States with whom they plan to work with, in order to get their return information. The contractor fills out this tax form with their business information, such as the business name, address, and tax identification number. The purpose of the Form W-9 is to identify the contractor and help business owners hiring them to handle taxes more easily. This tax form is filled out only once, at the beginning of the cooperation between the contractor and their client. It changes only if the contractor’s business information changes, at which point the contractor should inform their client and request to fill out the Form W-9 again. Keep in mind that you don't need Form W-4, as it only applies to the employees.
Important: If a business is working with a foreign independent contractor (living outside of the US), they need to issue a Form W-8BEN or W-8BEN-E instead.
What is Form 1099?
There are several Form 1099 variations, but, in this case, you need to pay attention to Form 1099-NEC, Nonemployee Compensation. Until 2020, this information was reported in Box 7 of Form 1099-MISC. IRS reintroduced Form 1099-NEC for reporting for the 2020 tax year.
Form 1099-NEC is a tax form sent by the client to the contractor and it denotes how much money they’ve paid the contractor over a single tax year. This form is submitted once at the end of the year, in the event that the contractor’s services cost more than $600 in a single tax year. The client should send one additional copy to the IRS as well, in order to help them track income tax for freelancers. As a contractor, you’ll want to keep the Forms 1099-NEC you receive from your clients as they will help you when paying your own taxes. The percentage of the sum of all of the 1099 forms you receive from your clients should go towards your self-employment tax and Medicare taxes. As a client, you should only fill out this form your contractor billed you over $600 in a single tax year. Filling and submitting the Form 1099-NEC form will cost you nothing, but it will help the internal revenue services check up on the contractor’s taxes and help the contractor double-check their own calculations.
If you are an independent contractor, make sure you save your invoices and 1099-NEC forms, and keep them for at least 2 tax years (preferably keep them until your business is closed) as the IRS will want to peruse them to ensure you’re paying the right amount in taxes.
Other types of 1099 forms:
- 1099-DIV: This form is used to report dividend income and distributions
- 1099-C: This form is collected for the cancellation of debt in amounts of $600 or higher
- 1099-K: This form is collected for merchant cards and third-party network payments
- 1099-INT: This form is collected to report interest income in amounts of $10 or higher
- 1099-S: This form is collected to report proceeds from real estate transactions
Do you need Form W-9 or Form 1099-NEC?
In short - you will need them both if you are working with independent contractors or non-employees. Technically, you shouldn’t even be able to fill out Form 1099-NEC without having received the Form W-9 from your independent contractor first.
Form W-9 vs Form 1099-NEC: Main differences
Here is a list of the main differences between Form W-9 and Form 1099-NEC:
- Filled out by the independent contractor
- Meant for clients to collect tax information from independent contractors (hence the name Request for Taxpayer Identification Number and Certification)
- Provides the clients with independent contractor's contact info and tax number
- Clients send a blank copy to the independent contractor, who returns it when filled out
- Submitted only once, unless the contractor's information changes
- Needs to be completed before the independent contractor starts working for the client
- Filled out by the client
- Meant for clients to report how much they've paid the independent contractor within a tax year
- Client sends two filled out copies: one to the independent contractor and the other to the IRS
- Filed at the end of every tax season
- Provides information about how much an independent contractor was paid by a specific client in a single tax year
- Needs to be sent every year, before January for every independent contractor who has been paid more than $600 within a tax year.
How to fill out Form W-9
Filling out this form as a contractor should not be too demanding. However, if you want to check it out before you attempt to fill it in, you can find an example of the Form W-9 on the IRS website.
1. Write your full legal name on the first line.
2. The second line is meant for the name of your business. This may be your “doing business as” name or the name of your business. If you don’t have one, you can leave the second line blank.
3. Choose the box that most accurately describes your business entity type. In most cases, this will be the "individual or sole proprietor". If you have a limited liability company, don't forget to state the type - C corporation, S corporation, or Partnership.
4. Provide your address.
5. Fill out your Tax Identification Number - this can be either your Social Security Number (SSN) or your Employer Identification Number (EIN).
6. Put in your signature and date.
Apart from getting to know what the form looks like, the example of the IRS website has some useful information about backup withholding, penalties, and exemptions. Even though we can provide you with advice and tips on how to fill in the Form W-9, you should still read the instructions in the form before filling it out.
Things to look out for when filling in tax forms
As an independent contractor, you need to be careful when sharing your personal or business information. This means you should only fill out a Form W-9 you receive from legitimate clients that want to request your services. Do not fill out and submit a Form W-9 you received from unknown sources.
As a payer planning to hire a contractor, keep in mind that Form W-9 is used only for independent contractors that work in the United States. If you’re looking to hire foreign independent contractors, the process will look much different and the right tax form to collect is W-8BEN for individuals and W-8BEN-E for foreign entities.