Why Do Small Businesses Need to Understand W9 Forms?

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Why do bookkeepers and accountants talk about W9 forms so much? What’s all the hype and why are they so important?

The Internal Revenue Service Form W9 is used when small business owners must get information from outside parties who provide a service to their business. Ultimately, a W9 form supplies the information required for a 1099 form.

Small business owners can easily stay on top of their W9 forms by asking for a W9 form before work begins instead of waiting until the end of the calendar year.

Small business owners can easily stay on top of their W9 forms by asking for a W9 form before work begins instead of waiting until the end of the calendar year.

What Exactly is a W9 Form?

A W9 form is a form required by the Internal Revenue Service (IRS) to obtain information from nonemployees. The W9 form is filled out by the taxpayer who is paid more than $600 a year for a service provided to a business.

Who Completes a W9 Form?

An independent contractor who performs a service totaling more than $600 in a calendar year must fill out a W9 form.

In addition, people who receive income from rent payments, royalties, and prizes or awards which add up to more than $600 a year are also required to fill out a W9 form. 

Who Keeps the W9 Forms?

The W9 forms are kept on file by the small business requesting the W9 form. The form can be used to file a 1099 form.

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Why Do Small Businesses Need a W9 Form?

Small business owners file 1099 forms based on the information given on a W9. Independent contractors use the 1099 form they receive to file their tax returns. 

The Internal Revenue Service uses the reporting of the 1099 form to keep track of nonemployees and their income. 

Nonemployees who receive a 1099 form do not have taxes withheld from a paycheck like an employee normally would.  Therefore, nonemployees or independent contractors must pay taxes on income reported to the IRS.

Information Required on a W9 Form

The W9 form comes with instructions; however, below is a quick breakdown.

  1. Name – The first line asks for a full legal name of the taxpayer
  2. Business Name – Line two is a business name. Line two is provided if the taxpayer has a DBA, doing business as, or a business name. If the taxpayer doesn’t have a DBA or a business set up, leave this section blank.
  3. Federal Tax Classification – Line three has seven options for a business or individual type. The taxpayer must know their business entity to fill out this section.
  4. Exemptions – Line four is for business owners. If the business is exempt from withholding the business owner will provide the tax code signifying the reason for the exemption. If the taxpayer is an individual you can skip this section.
  5. Address – Line five is for the number, street, and apt. or suite no. of a home or business address.
  6. City, State, and Zip Code – Line six is the city, state, and zip code of the address used in line five.
  7. Account Numbers – Line seven is commonly used when preparing a W9 form for a financial institution.
  8. Tax Identification Number – Part I allows for the taxpayer identification number. The taxpayer identification number is either the Employer Identification Number (EIN) if you are completing work as a business or a Social Security Number (SSN) if you are completing work as an individual or sole proprietor.
  9. Sign Here – The person filling out the form will sign and date the form.

Updating a W9 Form

A new W9 form must be provided when any of the following has occurred:

  • Name or Business Name Changes
  • Federal Tax Classification Changes
  • Exemption Status Changes
  • Address Changes
  • Tax Identification Number (TIN) Changes

Where Do I Get a W9 Form?

The W9 forms are free and located on the IRS.gov website.

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Independent contractors and landlords are the most common taxpayers who fill out a W9 form for a small business owner. Small business owners who request the form keep the form for their records.

Business owners have the W9 forms filled out to collect information from individuals or business owners who receive more than $600 in a calendar year for a service performed. The business owner uses the data collected from the W9 form to send out 1099 forms.

Always ask your bookkeeper and/or accountant to help you better understand who needs to fill out a W9 form.

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