You must have heard about W-9 forms; they are used to report contractors’ payments. So, if you are an employer hiring Contractors, it is important to understand these forms and how they should be filled out. This blog will explain what W-9 forms are and how you can ensure your contractors fill them out correctly.
The path of employing contractors is full of paperwork – it’s like the mazes in your childhood days! You’re always bound to run into a few roadblocks along the way. With so much paperwork to keep track of, it’s easy to get overwhelmed.
One such document you will come across is the W-9 form. Employers and contractors use this form to report payments made for services the contractor provides. It is an important piece of paper that must be filled out correctly, or both parties can face the consequences down the line from tax authorities. So, let’s look at this form and how you should use it in your business operations.
Understanding The Form W-9
The W-9 form is an Internal Revenue Service (IRS) form that must be completed whenever you hire a contractor to complete services for your business. This form requires the contractor to provide their name, address, social security number, or taxpayer identification number. Additionally, it provides information about the company paying out this remuneration and serves as an official document stating that the contractor is not eligible for employee benefits.
It consists of three main parts; the first is information about the contractor, such as their name and tax identification number. The second section asks for a certification that the contractor is not subject to Backup Withholding or Foreign person is subject to withholding. The third part includes general instructions about filling out the form.
What Are The Purpose Of Form W-9?
Form W-9 is used to provide the Internal Revenue Service with accurate information about contractors and freelancers so that they can track their earnings for tax purposes. It is also used to help companies verify that the contractor or freelancer has a valid Social Security number and/or Employer Identification Number. The form also states that the contractor is not eligible for employee benefits, such as health insurance or pension contributions.
Overall, Form W-9 serves an important purpose in ensuring compliance with IRS regulations for contractors and employers. As an employer, you must obtain a W-9 form from each contractor or freelancer you hire and keep it on file for four years. In addition, employers must also submit 1099 forms to the IRS each year summarizing payments made to contractors and freelancers during the previous year.
Who Needs To Fill Out The Form W-9?
The Form W-9 must be completed by anyone hired as a contractor or freelancer and will receive employment payments. As an employer, you must obtain a completed W-9 form from each contractor or freelancer before making any payments. The form must be signed and dated by the contractor or freelancer.
When Do I Need To Submit The W-9 Forms?
You don’t need to submit the completed forms to the IRS; however, you should keep all completed forms on file in case there is ever an audit of your business. The form must be collected before any payments are made to contractors and freelancers, and failure to do so could result in fines and penalties from the IRS.
The W-9 form should also be updated annually and whenever the contractor or freelancer’s information changes. The form must also be completed if a contractor or freelancer is paid more than $600 during the tax year.
What Are The Penalties For Not Collecting The Form?
The IRS imposes fines for those who do not submit or abide by the requirements of Form W-9. Failing to supply the correct taxpayer identification number carries a penalty of $50 per violation. However, this may be waived if it can be proven that the infraction was due to no fault of the taxpayer’s own.
Taxpayers can face civil penalties if they provide incorrect information, leading to incorrect withholding. If the taxpayer makes a false statement that results in no backup withholding, they may be fined up to $500. Further non-compliance may lead to criminal penalties and possibly imprisonment if the taxpayer willfully falsifies any information or affirmations. The penalty, however, can be waived if it is proven that the non-compliance was not due to willful neglect.
Hiring an independent contractor or an employee to work for your business carries many tax-related responsibilities that must be met to remain compliant with the IRS. Form W-9 should be completed by any contractor or employee so that the employer can correctly submit the information for federal tax withholdings. At the end of the year, all employees should be provided with a Form W-2 that details the wages earned and taxes withheld so that they can accurately report their income for tax purposes.