IRS W9 Form: For Freelancers & Independent Contractors and Those Who Hire Them

Construction LaborerDid you hire a freelancer this year?  You’ll have to get your freelancer or whoever you hired, to fill out a W9 Form so you can notify the IRS that you paid someone.  The IRS requires notification any time someone makes some money because that’s the only way the IRS will gets its share!

Or if you are a freelancer or in independent contractor: you’ll be filling these out for your customers and eventually you may get a 1099 in the mail.  The W9 Form simply does one thing: asks you for your Social Security Number (or Taxpayer ID Number).  That way, everyone is on the same page as far as reporting and wages and taxes go.

Independent Contractors & Freelancers

Independent contractors & freelancers don’t have bosses usually.  And just think about it: if you have a job working at a company you know that your paycheck is reduced a bit thanks to withholding.  The payroll specialist where you work figures out how much to take out of each paycheck and send to the IRS. Then you do your taxes at the end of the year and you may get some of it back, or you may not.  It all depends on your personal situation and your finances.  But the payroll specialist just applies a mathematical formula to your wages to arrive at the withholding amount.  This formula is based on what you told him or her when you filled out your W4 form the first day of work.  You told him or her how many allowances & exemptions you were claiming ( how many kids, etc).

But people who go into business for themselves and perform services for ordinary people like you and me don’t have bosses, payroll specialists, human resources, or anything a company has, to figure out and perform withholding.  They are essentially in charge of their own tax situation, as well as reporting to the IRS how much they make in a year.

No withholding is performed for them, obviously.  As the person who hires a freelancer it’s not your job to perform withholdling!  The freelancers just accepts a full payment from whoever hires them and it’s up to them to pay their taxes.  Like any wages, the money you pay your contractor is fully taxable by the IRS.  He or she is required by law to report all income and to pay taxes on it.  Otherwise, not fair!

When the contractor or freelancer does his or her taxes, he or she will need all the 1099 forms from people who hired him throughout the year.  As someone who hired a freelancer, you must get them to fill out the W9 Form so you can issue a 1099 MISC.  Otherwise this guy gets off scott free and pays no income tax!  If you paid more than $600 you are required to send a 1099 to the IRS and of course to the person you hired.

Don’t worry, tax preparation software makes it easy to issue a 1099 at tax time.  it’s built right into the software.

If You Hire A Freelancer or Independent Contractor…

If you paid more than $600 to someone for services then you have to tell the IRS about it.  The way the IRS identifies people or businesses is by a Taxpayer ID.  For individuals this is usually the Social Security Number.  How do you get the number?  Ask your freelancer or independent contractor to fill out a W9 Form.  Of all IRS forms, it’s perhaps the shortest.  Kind of like addressing an envelope:

  • name
  • address
  • tax classification (individual, LLC, Partnership, Corporation etc)
  • Taxpayer Identification Number (TIN)

What’s the Taxpayer Identification Number?

This can be the Social Security Number is the person you paid was a sole proprietor or just an individual performing some services for you.  But if the freelancer set up his or her business in a way that he or she went and got an Employer Identification Number from the IRS, then that’s what you’re asking for on the W9 Form.

TINs and Names: Get it Right and Use the IRS TIN-Matching Service

The IRS has TIN-checking services if you want to match the number you were given on the W9 with a name to make sure the person is legit.  It’s available through the iRS website.  It’s a good idea to match the TIN with a name through the TIN-matching service because mistakes will cause implications down the road for you.  You may get penalty notices and also letters telling you to perform backup withholding on the money you’ve already paid to the contractor. And, if the job is done already you’ll have to pay that out of your own pocket!

What if I Don’t Have a W9 Form?

You can use what the IRS calls a Substitute Form W-9.  As long as the form you create has all the required information (see list above) and some statements on it so that when the contractor signs it he’s also certifying that the information he provided is correct.  But just so you know, you can’t sneak in other unrelated provisions he’d be signing off to.  For example, you can’ insert your own statement stating that the contractor agrees to mow your lawn for a year if he signs the document!

What If I Hired Someone Online?

No problem: you can make an electronic form which can be submitted electronically.  No need for the freelancer to even print it out, sign it, and scan it back in.  Nowadays the IRS allows the click of a button to suffice for an e-signature.  Develop your own W9-Form and accept them online.

What if The Contractor Doesn’t Have His TIN Yet?

He can write TIN applied for on the W9 form.  He then has 60 days to get one and supply it to you.  If he doesn’t you will have to begin performing withholding.  You’ll have to calculate backup withholding on the money you already paid him.  No fun!  You probably don’t want to bother with this so you’ll want to be looking for another freelancer or independent contractor.

Sometimes the person you’re paying is exempt from backup withholding.  When it’s a tax-exempt organization, for example (a religious organization) or an IRA (in this case you’re paying for fees and things like that, through the administrator of the account).