W-9 vs 1099

W-9 vs 1099

What Businesses Need To Know About the W-9 Form and 1099 Tax Form

Every business chooses to hire full-time workers, part-time employees, independent contractors, or both. 


This decision often depends on work requirements and will change how you pay taxes. It also affects the type of forms you use to file: IRS form W-9, 1099, or 1099 Misc.


No matter which type you choose, there is one thing for sure: you need to report all payments you make to your workers. 


Large and small businesses must claim taxes for their full-time and part-time employees. They will use a W-2 form unless employees claim exemption from income tax withholding. Then they must give you a new Form W-4 each year.


But it is different for independent contractors. 


Contractors must withhold their own taxes (i.e., FICA, Medicare taxes, etc.). It is up to them to report their tax information returns.


What business owners need to do is report the payments made to contractors. Then send it in to notify the Internal Revenue Service (IRS.)


When to Record and Report Payments Made to Independent Contractors

Independent contractors are 1099-hires. They do not fall under standard employment tax classification rules. 


Contractors are not permanent workers, and they do not take commands from the company. Instead, they work using their own direction. (i.e., independent contractors, freelancers, non-employees, etc.)


However, when your company hires a contractor, you become the payer, and they become the payee. Thus, your company must record all employee compensation.


The payments you make to independent contractors must reflect the company's payroll. 


Ensure you include each third-party's tax information. You need to go along with the payment reports you submit for year-end taxes.


Examples:

  • Independent Contractor Name

  • Business Name (if different)

  • Business Entity - (i.e., sole proprietorship, partnership, C corporation, S corporation, trust/real estate, limited liability company or "other") 


Also, add this information to the report: 

  • Your address

  • ID number

  • Tax Identification Number (TIN)

  • Financial Institutions

  • Federal Taxpayer Identification Number

  • Business Name

  • Social Security number, etc.


Although you are not responsible for making sure your contractors are withholding taxes, you do need to ensure that they receive accurate earning information. Otherwise, you can receive a penalty. (Check the tax website for dates of when you need to send this information by.).

For your company and the contractor to complete these tasks, you both need to use the proper tax forms.


Does Your Business Need to Fill Out a W-9, 1099, 1099-Misc form?

So you are wondering which form it is you need to record, report, and release tax information.


Since independent contractors need to fill out a form that includes their tax information, they must use is a W-9. Once they fill it out, they then send it to your business.


Your business will take the contractor’s W-9 form and use their tax information to add to your payment records form. For your business to do this, you need to use 1099.


Since the W-9 form is only to gather information, Contractors also need to fill out a 1099 form to report, claim, and pay the taxes on the earnings you paid them.


Thus, W-9 forms do not get sent to the IRS, they are only to be used to gather information from contractors for your business. But you need to send 1099 forms to the IRS to report year-end income tax earnings.


Here are a few more details that your company needs to know about each form before the tax calendar year is upon us.


W-9 Tax Form Information

The independent contractor fills out a W-9 return with their name, address, and taxpayer identification. This information is what your business will use to report on its 1099 tax form. (Do not send this to IRS.)


The best time to gather contractor data on a W9 form is when you first hire the contractor. That way, if they earn over $600 in the tax year, you will already have the information you need to complete the year-end 1099.


Where to Find a W9?


You can download the W9 document and instructions in English or Spanish from the IRS website by going directly to irs.gov and search for “W9.”


1099 Tax Form Information

If the amount your business pays contractors is $600 or more during the tax year, you need to file a 1099 form and send it to the IRS.


The 1099 form is for your company to report payments made out to independent contractors to show how much income they earned at year-end.


The 1099 form is also for independent contractors to file their own taxes and report the earnings they receive from your business.


Form 1099-MISC is an Internal Revenue Service (IRS) tax return document used to report miscellaneous income made to "non-employee" individuals, such as independent contractors or freelancers during the calendar year.


Where to Find 1099 and 1099-MISC?

You can download the 1099 document and instructions from the IRS website, irs.gov website, and search for “1099-MISC.”

What if You Are Self- Employed?

If you are self-employed, you need to complete Schedule SE (Form 1040), Self-Employment Tax and pay self-employment tax on your net earnings of $400 or more. There is no withholding of tax from self-employment income, you only pay income tax on your profits, not your total income.


If you do not live in the United States but work for a U.S. company, there are other tax forms you need to fill out. W-9 and 1099 forms are for residents only.


Disclaimer: Tax laws change frequently. For the most up-to-date information, please refer to the irs.gov website or your tax accountant.

How to Make the Tax Process Easier for Your Business

If your records are messy, it will cause your payroll to become a nightmare. Especially if you are managing many contractors and their forms are all over the place. Use online payroll software, where you can organize and keep all your tax information safe in one place.


If you use software like  QuickBooks Payroll or ADP.com to track payments, automatically file 1099, and send tax forms out to each party, it makes tax time a much easier process.


When you use payroll software, it provides W9 and other tax documents for e -signature and online storage. This will help your company maintain a paperless payroll system.



Conclusion

The bottom line is that W-9 forms are what contractors fill out, and your business uses it for its 1099, and then you keep it on file. 1099 tax forms are what you and your contractors used to file your own taxes with the IRS.


Whether you use an accountant, a tax person in HR or payroll software, you need to ensure that they can accurately report tax information for your business. 


And it does not hurt if tax information collection and filings become a little less painful. Make sure you are working with online or offline tax professionals.


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