Ep 42: W-4 vs W-9
What is a W-9?
If you work as a freelancer, are self-employed, or perform contract work for a business, you may need to complete an IRS form known as a W-9, or Request for Taxpayer Identification Number and Certification. You would complete this tax form and submit it to your employer if you were employed in this capacity. Your W-9 data is used by your employer to complete a Form 1099-MISC that they send to you with the total amount they paid you if they pay you more than $600 over the course of the tax year. To report their payments, the employer must also send a copy of the 1099-MISC form to the IRS.
Form W-9 should include your:
Because companies that hire people who are not officially employees also do not withhold any of the necessary taxes, such as federal taxes or Social Security taxes, for these independent contractors, Form W-9 is crucial. Instead, the freelancer is responsible for paying these taxes themselves.
What is a W-4?
You must complete a W-4, also known as an Employees Withholding Allowance Certificate, with the Internal Revenue Service (IRS) when you begin working for a company. With the help of this form, your employer is informed of your tax obligations and can determine how much money to deduct from your paychecks throughout the year. It is the employee’s responsibility to accurately and completely fill out this form so that the employer can deduct the proper amount of taxes, which is typically determined by the allowances you have.
You can choose to withhold more money than is necessary when completing the W-4 form at the beginning of employment in order to increase your chances of receiving a tax refund at the end of the year. You might owe the IRS more money at the end of the year if your W-4 is incorrectly completed or you didn’t withhold enough taxes throughout the year.
W-4 vs. W-9 forms
Form W-4 is for employees, whereas Form W-9 is for suppliers, independent contractors, freelancers, and other individuals who receive non-employee compensation from a business. Another distinction is that employers use the W-4 to determine how much tax withholding to make from employees, while only using the W-9 to record their own information and for informational purposes.
Frequently asked questions about W-9s
Review the following frequently asked questions and their responses about Form W-9 to learn more:
Who may request that I fill out a Form W-9?
You may be required to complete a Form W-9 by businesses that hire you as a freelancer, independent contractor, vendor, or those who are your paying clients so they can track how much they pay you for your services. Other parties, such as financial institutions and giveaway companies, might require you to complete a W-9. Verify their request again to make sure it is legitimate and avoid sharing your personal information with anyone you shouldn’t.
Am I subject to backup withholding?
Because the IRS is required to send you a letter informing you of your mandatory status, you would be able to tell if you are subject to backup withholding. The majority of people who are subject to backup withholding didn’t fully disclose their information on a prior tax return.
Should I enter my SSN or EIN on Form W-9?
Depending on the type of business you have, you should either enter your social security number or employer identification number on your W-9. If you don’t have a business and are only reporting your income on your personal taxes, you probably don’t need an EIN and should instead use your SSN. If yes, the tax identification number you use on Form W-9 depends on the type of business you have.
A sole proprietor, for instance, can use either, whereas a corporation should use the EIN of the entity. However, there are many unusual circumstances, so it’s best to consult a tax expert to determine which identification number you should use based on how your business entity has been set up.
Do I have to fill out Form W-9?
Although the business you are doing business with may require Form W-9 as part of their policy, it is not always necessary. The IRS can fine any company that is not adhering to regulations and requirements. Subject to current tax laws, the employer you are working for will withhold a certain percentage of your pay if you refuse to complete Form W-9 in order to comply with the law.
How long is a W-9 valid for?
Although your relationship with the business or client may, a W-9 does not expire If so, they most likely won’t need your tax information anymore, and you won’t get a 1099-MISC from them.
How should I submit Form W-9?
Because Form W-9 contains private information, it is best to return it to a business securely. Consider mailing your form or delivering it in person. If you’re sending it via email, you might also want to use encryption services.
What is the difference between w4 and w9?
The difference between the W-4 and W-9 forms is that an employee must complete a W-4 while an independent contractor must complete a W-9. You can decide to have Toast produce 1099-NEC forms, which will be sent to contractors directly. If not, the contractor will be in charge of their own tax returns.
Should I fill out a w4 or w9?
You must ask a new hire to complete a W-4 form if you are hiring them. You must have an independent contractor fill out a W-9 form if you are hiring them.
Is it better to be w4 or 1099?
The two represent different employment situations, each of which has advantages and disadvantages of its own. A more direct comparison would be 1099 vs. W-4 forms, which only involve gathering the data that goes onto a W-2, as both of these forms require year-end income statements.
Is a W-2 the same as a w9?
The W-2 and W-9, which have entirely different purposes, are two documents that are simple to mix up. When it comes to taxes, your employer mails you a W-2 form, while if you work as an independent contractor for someone else, you must submit a W-9 form.