What is Form W-9?

If you’re a business owner, you’ve likely encountered IRS Form W-9 at some point. This form collects important tax information from independent contractors, freelancers, vendors, and other individuals or groups you do business with. 

Navigating tax forms and regulations can be overwhelming, especially if you’re new to running a business. But it’s important to be aware of all aspects of business taxes, so you’re ready when it comes time to file.

What is Form W-9?

Form W-9 is also known as the Request for Taxpayer Identification Number and Certification.  It’s a document used by businesses to gather important tax information from contractors, freelancers, and other independent workers. It’s issued by the Internal Revenue Service (IRS).

Think of it as a way for businesses to confirm basic information about the people and companies they’re financially dealing with. The form asks for basic details like the contractor’s name, address, and taxpayer identification number (usually a Social Security or Employer Identification Number).

What is Form W-9 used for? 

In a nutshell, businesses use the information from Form W-9 to prepare tax documents for the IRS.

When a business pays a contractor $600 or more annually, they must report those payments to the IRS using Form 1099-MISC. To fill out Form 1099-MISC accurately, the business needs the contractor’s name, address, and taxpayer identification number – all of which can be found on the completed Form W-9.

To complete Form 1099, you need the payee’s correct name, address, and TIN, which is where Form W-9 comes in.

What information is required on Form W-9?

Filling out a Form W-9 is relatively straightforward. The document itself is only one page long and asks for: 

1. The name of the individual or company (as soon as on their income tax return) 
2. Business name (if different from above) 
3. Federal tax classification (individual/sole proprietor, partnership, C corporation, S corporation, trust/estate, or other)
4. Their address 
5. Their taxpayer identification number (Social Security number or Employer Identification Number)
6. Their signature and date 

The information on a W-9 must be accurate, as any differences could lead to tax issues down the line.

Who needs to fill out Form W-9?

Any individual or entity receiving payments from your business as an independent contractor or vendor must complete Form W-9. This includes:

• Freelancers and independent contractors 
• Consultants
• Attorneys 
• Accountants
• Other businesses that provide goods or services to your company

You might be on both sides of the Form W-9 equation if you’re a small business owner. On one hand, you may need to request a completed Form W-9 from your contractors and freelancers. On the other hand, your clients may ask you to fill out a Form W-9 for them.

Any business that hires independent contractors will typically request a completed Form W-9. This includes companies, non-profit organizations, and even government entities. If you’re working as a contractor or freelancer, don’t be surprised if your client asks you to fill out a Form W-9 before they start paying you.

Who doesn’t need to fill out a Form W-9?

There are a few exceptions to this rule. Your employees who receive a regular salary and have taxes withheld from their paychecks do not need to fill out Form W-9. Instead, they’ll fill out a W-4 form when they start working for you and receive a W-2 form (instead of a 1099 form) for their taxes. 

Also, corporations generally do not need to provide a W-9, as they are exempt from 1099 reporting requirements in most cases.

Even if you don’t end up paying a contractor $600 or more in a given tax year, collecting W-9 forms from all your vendors and contractors upfront is still a good idea. This way, you’ll have the necessary information if you reach the $600 threshold.

Form W-9 vs. W-4

One common point of confusion is the difference between a Form W-9 and a Form W-4. While they might sound similar, they serve very different purposes.

A Form W-4, or “Employee’s Withholding Certificate,” is filled out by employees (not contractors) to let their employer know how much federal income tax to withhold from their paychecks. This form is based on the employee’s marital status, number of allowances, and any additional withholding requests.

On the other hand, a Form W-9 is used for contractors and freelancers, not employees, and it has nothing to do with tax withholding. Its purpose is to provide the client with the contractor’s tax information for reporting purposes.

Why is Form W-9 important for your business?

Collecting W-9 forms from your vendors and contractors is essential for several reasons:

• Accurate tax reporting: You need the information on Form W-9 to properly complete Form 1099-MISC or 1099-NEC for each payee at the end of the year. Failure to file these forms or filing them with incorrect information can result in penalties from the IRS.
• Backup withholding: If you don’t receive a completed Form W-9 from a payee, you may be required to withhold 24% of their payments and send it to the IRS as backup withholding. This can be a hassle for businesses.  
• Compliance with IRS regulations: Collecting and maintaining correct W-9 forms shows that your business follows the IRS’ rules. This can be especially important if the IRS ever audits your business.
• Streamlining your accounting processes: Having all your vendors’ and contractors’ tax information in one place can make your accounting and tax preparation processes much smoother. It helps you keep track of who you’re doing business with and how much you’re paying them over the course of the year.

What happens if the payee doesn’t provide a Form W-9?

You should ideally ask for a completed Form W-9 from a vendor or contractor before you pay them. This ensures you have the right information when it comes time to file your 1099 forms. 

You can request Form W-9 by mailing or emailing a blank Form W-9 to the payee and asking them to complete it and return it to you. Some freelancers or vendors will already have a completed one to send you. 

What if you request a Form W-9, but the vendor or freelancer doesn’t provide one? 

• Backup withholding: If you don’t receive a completed Form W-9 from a payee after repeated requests, you may need to begin backup withholding on their payments. You’ll withhold 24% of their payment and send it to the IRS. While this can be a hassle for your business, it’s an essential step to ensure compliance with the IRS. 
• Withhold payment: Some businesses withhold payment entirely until the payee provides a completed Form W-9. This can be an effective way to encourage compliance but can also strain your relationship with the vendor or contractor.
• Terminate the contract: In extreme cases, you may need to consider terminating your contract with the payee if they repeatedly fail to provide a W-9. This should be a last resort, as it can disrupt your business operations and require finding a new vendor or contractor.

Storing and updating Form W-9

Once you’ve received a completed Form W-9 from a payee, it’s important to keep it on file for at least three years after the last tax year the Form 1099 was filed for that vendor. If you made payments to a contractor in 2023, you should keep their W-9 on file until at least April 15, 2027 (or later if you file an extension).

It’s also a good idea to periodically check in with your payees to ensure their information is still current. If a payee changes their name, address, or tax classification, they should complete a new Form W-9 and send it to you. 

How Swoop can help 

By now, you should have a solid understanding of what the W-9 form is and why it’s so important. Remember, staying on top of your taxes is crucial for the success of your small business.

If you want more support in managing your business finances, consider checking out Swoop Funding. Our platform connects small business owners with various types of funding and loans, allowing you to view a variety of lenders and financing options, compare rates and terms, and apply for funding — all in one place. 

Our platform offers the ability to: 

• Streamline your taxes by tracking and managing interest deductions for your business loans. 
• Compare offers and lenders to find the right one that fits your needs 
• Get personalized advice to help you make the right decision for you 

With Swoop Funding, you can take control of your business finances and access the resources you need to succeed. Our team of experts is here to guide you through the financing process and help you find the best solution.