W9 VS 1099: What is a W9?

W9, a single-page IRS form, is a request for collecting a Taxpayer Identification Number (TIN) or Social Security Number (SSN) from employees.

Freelancers or contractors are responsible for filling in the required details and sending the form to the employer. Remember, the W9 form is not directly handed over to the IRS, and therefore, first, you need to send it to your employer.

In case you have worked for one or more companies, the employer(s) would ask you to submit the tax details for federal income tax reporting purposes.

Notably, the W9 form has no submission deadline, but it is recommended to share it with the employer as soon as you are done.

W9 VS 1099: What is a 1099?

The IRS Form 1099 is used by employers to report the income of individuals who have worked for the company but not in-house employees. By sending Form 1099, what they do is inform non-employees like freelancers about how much money has been paid throughout the year and then, simultaneously, report it to the tax authorities.

Keep in mind that the 1099 form only comes into effect if freelancers or contractors receive more than $600 in a payment.

In simpler terms, Form 1099 is used to inform the IRS about the total amount paid to freelancers or contractors. It’s like the employer telling the IRS, “Hey, we paid this much money during the year”.

Say, for example, you, as a business owner, hired a freelance content writer to outsource your client’s project work. Now, you need to send a 1099 to the freelancer before the 31st of January, i.e., when the tax period comes to an end.

However, there are many 1099 forms available on the IRS website. Let’s break down their types and find out how to file 1099 taxes correctly.

• • 1099-NEC

The role of 1099-NEC is to inform about the compensation of non-employees, which was earlier required in Form 1099-MISC. If businesses paid over $600 to freelancers for their services, then they need this form to report the payment.

• • 1099-INT

1099-INT is to report the interest earned on investments in the previous year. They are issued by entities that have paid interest to investors. The form 1099-INT is shared with the taxpayer as well as with the IRS.

• • 1099-DIV

Just like you receive 1099-INT from banks, 1099-DIV forms are usually issued by investment firms. So, if you pay out dividends to the shareholders, the firm will send you a 1099-DIV. This way, the IRS learns about the income you earn through investments.

• • 1099-C

In case some portion of your debt is forgiven, then you are required to send a 1099-C to the government. This is simply because the federal government considers the debt cancellation as income. However, the canceled amount should be $600 or more than that.

• • 1099-G

The 1099-G form symbolizes that government agencies are required to report income if they offer benefits to unemployed people or tax refunds as well. So, if you earn unemployment benefits or a tax refund, next, you will get a 1099-G from the government.

• • 1099-R

‘R’ in 1099-R indicates the retirement funds. So, if you plan to withdraw some amount from the IRA, then you will receive a 1099-R at the year end. You need to showcase the total amount you withdrew from the retirement account.

• • 1099-K

The Form 1099-K is for those individuals who receive payments via either debit card or credit card. Online retailers and more often freelancers get payment from third-party payment gateways, and therefore, they need to file Form 1099-K.

• • 1099-S

The Form 1099-S is all about showing your income earned through the sale of property or rental income. So, whenever you sell a residential property or commercial property, remember to file Form 1099-S. You can get it from a real estate professional or an attorney.

Who Gets a W9 Vs. Who Gets a 1099?

Contractors or individual freelancers get a W9, while employers get a 1099.

If you are a contractor working for a firm, then you need to fill out the Form W9 and send it to your employer. You need to tell your legal name, address, and, essentially, a Taxpayer Identification Number (TIN) to the employer. The tax filing process of Form W9 is completed by individuals who are not full-time employees.

On the contrary, employers get the 1099 in order to inform the IRS how much they paid to a contractor or freelancer throughout the year. After completing Form 1099, the employer can submit it to the IRS and provide one copy to the contractor or freelancer.

1099 Vs W9 Forms: Is a W9 the Same As a 1099?

Now you know who needs to fill what, but you may not be aware of the difference between W9 and 1099.

Alright, let’s take a look.

W9 Form vs 1099: How to Fill Out a W9?

As soon as you receive the Form W9, you can start filling out the required details as mentioned below.

Line 1 & 2: Give Basic Information

The first thing in the Form W9 you will notice is to fill in the basic details. Start by entering your full name, and type a business name (in case you want to mention it). Line 2 is optional, hence you can skip it if you don’t want to put the business name.

Line 3(a/b): Pick a Checkbox for Tax Classification

In line 3(a), you will be asked to check the appropriate box for federal tax classification. This way, you can help the IRS understand how to classify you for tax purposes. Go ahead and pick any one like Individual/sole proprietor, C Corporation, S Corporation, Partnership, Trust/estate, or Limited Liability Company (LLC).

In case your business is registered as an LLC, well, it’s not enough to just tick the “Limited Liability Company” box. Define how your LLC is taxed in the space provided on the next line 3(b).

Line 4: List Out Exemptions

Moving on to the next one, businesses or entities exempted from backup withholding need to enter the number code or letter code. Other individuals, like freelancers or contractors, can let go of this field as they aren’t exempt. Also, if you are not sure what to describe in this field, you can leave it instead of entering incorrect details.

Line 5 & 6: Write Address, City & State

At this point, enter your mailing address, the one where you want to receive tax-related documents in line 5. Following that, mention the name of your city, and state, along with the ZIP code in line 6. In case of any query, you can refer to the given instructions by the IRS on page 3.

Line 7: Enter Account Number

At this point, it is optional to describe your bank account number, which is optional. This means you only need to add when asked by the employer. This field is required in case you have multiple accounts in order to match the form with the specific one.

Part I: Describe SSN/EIN

Next, you will find Part I, where you need to enter your Social Security Number(SSN) or Employer Identification Number (EIN). Sole proprietors or individuals can go ahead and enter their SSN, while those selected LLCs can describe their EIN.

Part II: Put Signature and Date

Done with the above steps, lastly, you need to review the details you entered to confirm the Form W9 is error-free. Go through the details carefully and afterward, add your signature and the date. Upon completing the Form W-9, you can submit it to your employer.

1099 Form vs W9: How to Fill Out a 1099?

As an employer, if you have hired and paid over $600 to a contractor or anyone who is not a full-time employee, then you are required to fill out a 1099-NEC. For other on-site employees, you can consider Form W-2.

Let’s assist you in completing the Form 1099-NEC, box by box.

1. Specify Payer’s & Recipient’s Information

The first thing is to describe your business (or payer) information. Start with your legal business name, street address, mailing address, city, and state, followed by ZIP code. Then, type the office phone number.

Also, you will be required to enter your TIN (SSN or EIN) as well as the TIN of the recipient. Now, similarly, populate the recipient’s details like the full name of the contractor, their address, city, state, and ZIP code.

2. Declare Nonemployee Compensation

Now, coming to the right side, here comes the core part of your 1099-NEC Form, where you need to report how much you paid to the contractor during the tax year. For example, if you paid $ 3,500 to a contractor for completing a specific task, then it goes directly into this box.

3. Define State/Federal Tax Income Withheld

Below nonemployee compensation, you will find line 4, where you need to represent federal tax income withheld if and only if you have income tax withholding. Thereafter, include state income, not for the IRS, but to inform the tax department of your state. If you report to the state tax department, you need to consider adding tax information to the state income.

4. Review & File

Supplying all the necessary information, next, you have to take a second look at the form to assess data accuracy. If everything is just like you wanted, submit it to the IRS. Also, don’t forget to send a copy of Form 1099-NEC to the contractor (or non-employee) and keep another copy for your internal records.

W9 vs 1099: Final Thoughts

In the end, our key takeaway is that everyone has their own tax obligations. The stiffer the tax rules, the more challenges in completing the tax forms. Everybody (be it a contractor or the employer) has to go through the federal tax system complexities.

Now that you know the difference between 1099 and W9, you can choose the correct form and accurately fill it out. Regardless of which form you send, remember to file it before the given tax deadline, or else you will be subject to penalties.

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