What is IRS Form W-9?
Form W-9 is a commonly used IRS form. If you do business with a company that pays you as an independent contractor, freelancer or gig worker (in other words, self-employed), or will be paid income such as interest or dividends, a company may request that you fill out and send a W-9 so they can accurately prepare a 1099 form, report the payments they make to you at the end of the year and know whether or not you are subject to backup withholding. And, if you hire independent contractors in your business you likely should ask for completed W-9 forms from these people.
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Who Asks for a Completed W-9?
The person or business paying you is responsible for requesting the W-9 Form from you. However, the requester has no obligation to file the W-9 with the IRS. That person keeps the form on file and uses this information to prepare other returns, such as 1099 Forms and 1098 Forms, as well as to determine whether federal tax withholding is necessary on the payments you receive.
Who Needs to Complete Form W-9?
You will usually submit a W-9 form when you engage with a company where reporting information to the IRS might be necessary, such as receiving payments for services you provide as an independent contractor, paying interest on your mortgage or even contributing money to your IRA account.
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The individual or business you are doing business with uses the W-9 to collect some of your personal information, the most important of which is your taxpayer identification number (TIN).
When Should You Ask for a W-9?
When you begin working with a contractor or freelancer that you will be paying, you should request that the contractor complete a Form W-9 prior to starting any engagement. Failing to do so could prove troublesome after beginning the work.
Therefore, before starting any work with a person or business, be sure to ask for a Form W-9 if they haven’t already provided you with one. Failing to do so could make you required to pay withholding taxes on the money that you pay them.
TurboTax Tip:
Companies who engage you as a contractor or make payments to you for services you provide will likely ask for a completed W-9. Likewise, banks, brokerage firms and other payers typically ask for a completed W-9 to prepare your 1099s to report items such as interest, dividends, cancellation of debt and more.
What is backup withholding?
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Backup withholding is money sent to the IRS from income payments which otherwise wouldn’t be subject to withholding. Payers may be required to withhold taxes to ensure that the IRS will receive income taxes that are owed to them.
Taxpayers may be subject to backup withholding when failing to supply a correct taxpayer identification number (TIN) or if the IRS believes that they owe them money and they aren’t able to collect it any other way. Further, individuals or businesses can become subject to backup withholding for failing to report interest, dividend or patronage dividend income.
Specifically, you may be subject to backup withholding and the payer must withhold at a flat 24% rate for 2023 and 2024 when:
- You fail to supply your TIN or provide an incorrect TIN
- The IRS notifies the payer to withhold taxes because you have a history of underreporting your income on your tax return (the IRS typically will only do this after it has mailed you four notices over at least a 120-day period)
- You fail to certify that you’re not subject to backup withholding
You can usually prevent backup withholding by supplying the correct information when requested and paying an appropriate amount of taxes each year. If you receive a 1099 form stating you’ve had taxes withheld through backup withholding, be sure to report this as federal income tax withheld on your income tax return.
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