Form W-9 vs Form 1099

You can file or collect different tax forms within a tax year in the USA. It is important to know how to file these tax forms and where to file them. Form 1099 and Form W-9 are one of these forms, and both are tax forms, but they have different functions.

If you are an employer working with independent contractors, you need to know both Form 1099 and Form W-9 because you will need both of these 2 forms. Before completing Form 1099, you must obtain Form W-9 from the independent contractor. There are a number of important differences between Form W-9 and Form 1099. Form W-9 is filled in by an independent contractor, handed over to the employer, and then the employer uses the information on this form for Form 1099-NEC. In short, if you are an employer working with independent contractors, then this issue is for you and it is useful to know these forms. We will make an introduction to the subject briefly. In this article, we will talk about the differences between Form W-9 and Form 1099 and guide you on who should fill out these forms. You can also refer to the instructions section on the IRS official website for detailed information about the forms.

What is Form W-9?

Form W-9 is the “Tax Identification Number and Certification Request” form, as can be understood from the legal name of the form. Form W-9 is completed by an independent contractor and sent to the employer. The independent contractor provides the tax identification number (TIN) number and contact information to the employer with the use of the W-9 Form. Employers will benefit from the information provided in this Form W-9 when completing Form 1099. As of 2020, enterprises will use Form 1099-NEC for payments made to independent contractors. We will talk about this in detail in What is Form 1099?

When the contractor starts work, he completes the W-9 form and sends it to the employer. The contractor fills in the name, address, and tax identification number (TIN) on this form. Then the information on this form will be useful for the employer when completing Form 1099.

So if you are an employer and working with independent contractors, it is a good idea to send them a Form W-9 when they start. Because you will use the information on Form W-9 later when completing Form 1099-NEC. In summary, you can request Form W-9 to obtain the taxpayer’s tax identification number. There is no specific tax date for submitting the form.

Note that Form W-9 is only used for independent contractors working in the United States. The process is different if you want to hire foreign independent contractors. The correct tax form to use is W-8BEN for individuals and W-8BEN-E for foreign entities.

What is Form 1099?

There are several different versions of Form 1099. If you are an employer working with independent contractors, your concern is with regards to Form 1099-NEC (Non-employment Compensation). Form 1099-NEC is used to report Non-employee Compensation, as the legal name suggests. By 2020, Form 1099-MISC was used to report payments made to independent contractors.

From 2020, Form 1099-NEC must be submitted for independent contractors. If you are paying independent contractors $600 or more in a tax year, you must complete Form 1099-NEC. With this form, you allow independent contractors to know how much you have paid within a tax year. Well, if you’ve never heard of these forms before and you are going to work with independent contractors for the first time, you might be wondering what the connection is between Form 1099 and Form W-9.

We said at the beginning that these two forms are tax forms. We’ll go into detail below, but when dealing with it, it’s important to know: When you start working with an independent contractor, you must send him a Form W-9 to complete. This form allows the contractor to provide contact details and most importantly, their tax identification number. The contractor then returns this form to you and you can then use the information on Form W-9 to complete Form 1099 which will notify the independent contractor about your payments within a tax year.

To report payments made within a tax year, you must submit this completed form by January 31st. For example, if you are an employer and have paid $600 or more in the Year 2021 to an independent contractor, you must complete this form by 31 January 2022 and send it to the IRS and to the independent contractor. There is one thing that you should not confuse here. Form 1099 is a form used for independent contractors. If you have employees, you should use the W-2 Form for them. Remember this distinction. It is important to be aware of the difference in forms used between an independent contractor and an employee. If you are an employer, you must use and fill in the correct form as the IRS is very strict about this.

There are different types of the IRS Form 1099. Form 1099-NEC is used to declare “Non-employee Compensation”. But in America, people can have more than one source of income. These incomes may be non-wage incomes. You may also have other income, such as interest income, dividends, health insurance advance payments, capital gains, and pension plan distributions. Usually, payers, employers, or financial institutions complete Form 1099 and send a copy to individual taxpayers. They also send another copy to the IRS. For example, a financial institution or bank might cancel your debt. To indicate and report the amount of this cancelled debt, Form 1099-C is then sent. The IRS considers debt cancellation as taxable income even if you do not receive any payment. If you would like to learn about other types of Form 1099, see What Is 1099 Form And Who Needs It? You can check out our blog post.

Who Should Fill out W-9 Form?

Independent contractors have to complete the W-9 Form. They have to enter information such as their name, address and their tax identification number on the form. It can be a tax identification number (TIN), a Social Security Number (SSN), or an Employer Identification Number (EIN). To access this information, employers wishing to work with independent contractors must send them a W-9 form when they start to work. The legal name for the W-9 Form is the Tax Identification Number and Certification Request. So this form is a form used to obtain a contractor’s tax identification number and it is completed by an independent contractor.

Who Should Fill Out Form 1099?

Form 1099 has many different varieties. But here we are comparing Form 1099 and W-9. So if you are working with independent contractors and you have paid them within a tax year, the most important form to you is the IRS tax form, Form 1099-NEC. That is, employers who work with Independent contractors and pay them $600 or more in a tax year must complete Form 1099-NEC. This form is completed by employers and businesses. It lets the contractors know how much they were paid during the year. Employers complete Form 1099-NEC and then send it to the IRS and to the independent contractor. So if you are an independent contractor, you can probably get a copy of Form 1099 from your employer.

So where are these forms sent and is there a deadline for submitting them? Of course there is, let’s talk about them for a bit.

Where To Submit Form W-9?

Form W-9 is filled in by an independent contractor or independent employee to provide the tax identification number to the employer. The employer may send this form to the independent contractor when he starts work or request Form 1099 before filing.

The independent contractor must give the form to the employer or business who requested it. So there is no need to send it to the IRS. Form W-9 form should be completed by an independent contractor and then given to the employer. As an independent contractor, you do not need to submit the form to the IRS.

Where To Submit Form 1099?

There are many types of the Form 1099, but as we said, Form 1099-NEC is used for independent contractors. If you, as an employer, have paid independent contractors $600 or more in a tax year, you must complete this form. The legal name of the form is “Non-employee Compensation”. You can find the form on the official website of the IRS. The form has copies of Copy A, Copy B, Copy C, Copy 1, and Copy 2.

Copy A

It is for the Internal Revenue Service Centre (IRS). You must submit a Copy A to the IRS. You can send it electronically via the IRS FIRE system. If you want, you can also send it through the postal service. Filing electronically may be faster and more convenient for you.

Copy A appears in red, similar to the official IRS form. We would like to point out that the official printed version of Copy A of this IRS form can be scanned, but the online version printed from the IRS website cannot. Do not print and file the Copy A downloaded from the IRS website because filling out IRS information with non-scannable return forms may result in penalties.

Copy B

This copy is for the recipient. It is submitted to an independent contractor.

If you are an independent contractor, you will receive this form instead of the W-2. Because the employer does not perceive you as an employee and income tax and medicare tax is not deducted from your salary.

Copy 1

This copy of the form is for the State Tax Department.

Copy 2

This copy is sent to the recipient. When required it will be filed with the recipient’s state income tax return.

Copy C

You should keep this copy for your own records. So Copy C is for the Payer.

When to submit Form W-9?

If you are an independent contractor, Form W-9 has no tax deadline in which you have to submit it. When you start working, it would be correct to complete this form and send it to your employer. It is completed only once. If you have hired independent contractors or freelancers, it is a good idea to ask them for the Form W-9 when they start. So before the end of a tax year, you must obtain Form W-9 from the independent contractors. You will need this information before you can complete Form 1099-NEC.

When To Submit Form 1099?

There are many different types of the IRS Form 1099 depending on the income generated. We will discuss Form 1099-NEC (Form for Independent Contractors). If you are paying independent contractors $600 or more within a tax year, you must complete this form. You must send this form to the IRS and to the independent contractor (recipient) by 31 January after the end of a tax year. The deadline for you to submit your “A” copy of the form to the IRS is January 31st. Copy B is for the recipient and the deadline is also January 31st. C copy is for your own keeping. Sometimes you may need to send a copy to the State Tax Office. You can send it electronically with the IRS FIRE system. Or you can send it by postal service. If you submit the form late, there are penalties, so it is important that you do not miss the deadlines.

How To Fill out Form W-9?

Form W-9 is pretty easy to fill out. If you want, you can read the Instructions section at the bottom of the form for detailed information.

Enter your full legal name as an independent contractor in the first line, as shown on your income tax return. If you have a business name, or DBA, enter it on line 2. So if it’s different from your own name, enter the business name. If not, you can leave the second line blank.

For US federal tax, check the appropriate box in line 3. Enter the box that most accurately describes you. Usually, they are for individual or sole proprietors.

You must enter your address on line 5. So you will be providing your contact information.

You must enter a Tax Identification Number (TIN). Your tax identification number can be a Social Security Number (SSN) or an Employer Identification Number (EIN).

Tax Identification Number (TIN)

You must provide your Tax Identification Number on the W-9 Form because the employer will use this information when completing Form 1099. Tax Identification Number can be SSN or EIN. For individuals, this is usually the Social Security Number (SSN). If you are the sole proprietor and have an Employer Identification Number, you can enter either your SSN or EIN number. If you do not have a Tax Identification Number, you can apply for an SSN. To get an SSN number, you must fill in the Form SS-5 Social Security Card application form. In some regions, you can apply for a card online. Unlike other numbers, it is a number given by the Social Security Institution. For detailed information, you can check our blog post on Tax Identification Numbers.

How To Fill out Form 1099-NEC?

If you are an employer, working with independent contractors, you must complete Form 1099-NEC for them. You must complete Form 1099-NEC with the information the independent contractor provides on Form W-9. As we said above, you must submit this form to both the IRS and the recipient (independent contractor or self-employed) by January 31st. You can access the form on the IRS official website. So how do you fill in Form 1099? Let’s talk about this a little bit. Information provided in Form 1099:

Name and address information of the person who completed the form, that is, the payer

Tax identification number of the person who completed the form (payer)

Recipient name (name of independent contractor) and address

The Tax Identification Number of the recipient (the independent contractor), must be entered. To achieve this, you must submit Form W-9 to independent contractors before issuing Form 1099. Tax Identification Number: It can be SSN, EIN, ITIN.

  • Account Number: If you are completing more than one Form 1099-NEC, an account number may be required if you have more than one account for a recipient. A unique number can be shown by the payer to distinguish the account. It can be anything unique, like a trick. This number makes it easy to make corrections in forms. For detailed information, you should refer to the IRS instructions.
  • 2nd TIN note: Only available on Copy A. Enter this box if you have reported twice within 3 calendar years that the creditor provided the wrong tax identification number.
  • Box 1 Non-employee compensation: The total amount paid during the year is entered.
  • Box 4 Federal income tax withheld: You will not normally deduct taxes from payments made to non-employees. However, some individuals may be subject to backup withholding. Shows backup withholding. If the employees did not give the TIN number to the payer (employer), or if they are misrepresented, the payer must withhold backup withholding on certain payments. See IRS Form 1099-NEC Instructions for detailed information.
  • Box 5, 6, 7:  The IRS does not require you to fill in these boxes. However, the state tax office can request this information.

Differences Between Form W-9 and Form 1099

Form W-9 is completed by an independent contractor. Form 1099-NEC is completed by the employer or business.

The legal name of the W-9 Form is the Taxpayer Tax Identification Number and the Certification request. In other words, independent contractors provide their Tax ID numbers to employers with this form. Form 1099-NEC reports how much the employer has paid to the independent contractor within a tax year.

Form W-9 is submitted once unless the independent contractor’s information changes. Form 1099-NEC is submitted every tax season.

Form W-9 must be submitted by an independent contractor to the employer prior to or at the commencement of work. It is not sent to the IRS. Form 1099-NEC must be submitted by 31 January after the end of a tax year. One copy is sent to the IRS and the other copy is sent to the contractor.

Bottom Line

There are many different varieties of the Form 1099. If you are working with independent contractors, you will need Form W-9 and Form 1099. If you have paid $600 or more to independent contractors within a tax year, you must complete Form 1099-NEC (it was Form-MISC before 2020), then send it to the IRS and also to the independent contractor by January 31st. On Form 1099, you must enter the independent contractor’s or self-employed individual’s tax identification number. To achieve this, you must request a Form W-9 from independent contractors before or when the business begins. That is, Form W-9 provides the Tax Identification Number. For detailed information, you can check the instructions section of the forms.

*This document should not be assumed as legal advice. This information may change so please make contact with our team of attorneys to confirm it.

References

https://www.irs.gov/forms-pubs/about-form-1099-nec

https://www.irs.gov/instructions/i1099msc

Irmak Kocyildiz
Written by Irmak Kocyildiz

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