Form W9 and 1099 For Indepedent Contractors

As a business owner, you will inevitably have to go to outside vendors for products and services. Whether you hired someone to work on your website or provide an outsourced service to a customer, it is important to track and report outsourced costs appropriately.

Get a W9 from Each Contractor

The IRS form W9 is used to ensure you are contracting with a legal US person or entity. It is a short form that includes name, contact, and tax ID information.

As a business owner bringing on an independent contractor, it is your responsibility to collect a form W9 and maintain a copy of it for future reference if needed. This form is not sent to the IRS, it is for business owners to hold for future tax reporting purposes.

Not For Employees

A W9 is only for contractors, not employees. If you hire an employee, you are required to collect a W4 and I9 form.

To determine whether you hired an employee, you can use the common law rules published by the IRS.

Facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Issue a 1099

If you paid a contractor more than $600 in a calendar year, you are required to report that income to the IRS and issue a form 1099-Misc to the vendor.

Your tax software most likely has everything needed to issue a form 1099. If you have any questions about W9 or 1099 forms, it is always best to consult with a professional business accountant.

On the Other Side of the Table

If you do work for another business as an independent contractor, it is your responsibility to furnish a form W9 and report your income on your taxes, usually on a Schedule C or business tax return.

Even if your income falls below the $600 threshold, you are required by law to report the earnings to the IRS and pay taxes.

Be Safe, Report Everything

You don’t want to end up with fines, or even worse, jail time, for avoiding taxes. Penalties for tax evasion are stiff. The IRS considers any income taxable. While some professions, particularly ones where you are paid in cash, are popular for tax evasion, it is a bad idea.