W9 vs 1099: IRS Types, Length & When to Use Them

A W9 (W-9) is an Internal Revenue Service (IRS) form that is used to gather information about a builder, so that their earnings can be reported in year-end. Conversely, a 1099 (1099-MISC) is the document that is issued to show how much money that the contractor got.

Disclaimer: Tax laws change frequently. For the most current information please refer to the IRS.gov site or your tax accountant.

Inputs and Output Documents: W-9 vs 1099

The difference between a W-9 and a 1099 is a W-9 is a input document and also a 1099 is a output document. A contractor uses a W-9 to give the company’s payroll department the information that they will need to report the contractor’s earnings at year-end. The 1099 is exactly what the contractor receives year-end reporting their income.

A W-9 is utilized to collect data, whereas a 1099 is used to report it. Let’s look at an example of how they are used for an independent contractor doing work for the business.

When to Use a W-9 vs 1099

A W-9 is utilized to accumulate contractor data, such as name, address, and social security number. A 1099 is used to report their earnings at year-end when they got $600 or more. The IRS has lots of rules and caveats for when to use a W-9, as well as when to use a 1099, and what type of 1099 to utilize.

The illustration below shows how a W-9 is used for many different business motives, resulting in 1099s. However, this article will concentrate primarily on using it to get a contractor, resulting in a 1099-MISC being issued at year-end. We’ll look at the 1099-MISC in more detail later in the report.

When to Use a W-9

The best time to gather contractor data on a W-9 is when you begin working with the builder. In that way if they earn over $600 in the tax year, you’ll have the info required to complete the year round 1099.

We also counsel you consider every time a W-2 needs to be used instead of a 1099-MISC, like when you hire employees or employees who don’t fulfill the requirements of a 1099 contractor.

Details on the W-9 Form

The W-9 type, Request for Taxpayer Identification Number and Certification, is an IRS document used to gather data your business needs to report to the IRS at year-end. However, since IRS forms vary, your very best option is to use the IRS site as your main resource for any IRS tax forms or directions. You’ll find detailed directions there to assist your builders complete the form correctly.

Once your builder completes the W-9, maintain a copy of it on file in case you’re ever audited. The completed and signed W-9 demonstrates that you gathered the correct information for the taxpayer. The IRS does not require a copy of this record.

The Way to Locate a W9

You are able to download the W-9 document and instructions in English or Spanish in the IRS website using the links below, or proceed right to IRS.gov and search for’W-9′.

• Obtain a blank copy of the W-9 Form
• Download a blank copy of the W-9SP Form (in Spanish)
• View directions to complete a W-9 Form

In addition, if you use payroll software like Gusto, W-9 along with other tax documents are supplied and frequently available for e-signature and internet storage, helping you maintain a paperless payroll system.

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Taxpayer Identification Number (TIN) on the W9 and 1099-MISC

While most of the data fields are self explanatory, with instructions and resources on the IRS website, a common question is exactly what a TIN is. The TIN is your taxpayer identification number. To get an independent contractor who does not have a business thing, it is their social security number. Business owners and contractors will utilize their federal employer ID number because their TIN.

In case the contractor does not provide a TIN, the IRS requires you to withhold 28% federal tax, which will then be reported on the 1099-MISC annually end.

Details about the 1099-MISC Form: Miscellaneous Income

The 1099-MISC is a IRS document that’s used to report a variety income, such as that obtained by an independent contractor for work supplied to a business or personal employer. It is similar to a worker’s year-end W-2 with comparable information fields, but used by companies that pay non-employee contractors such as freelancers or contract workers.

Utilize a 1099-MISC to reports payments made to a builder that earns $600 or more in a tax year.

Obviously, there are other reasons a person may get a 1099-MISC, such as for crop insurance, fishing boat profits, or golden parachute payments. But for a typical contractor, those boxes will remain blank on the report. Like the W-9, the 1099-MISC, as well as instructions to use it along with a definition of each field are available to view or obtain by looking for 1099 on the IRS site.

Where to Locate a 1099

You can download the 1099 record and instructions from the IRS website, utilizing the links below, or go directly to IRS.gov site and seek out’1099-MISC’. The 1099-MISC isn’t yet available in Spanish.

• Download a blank copy of the 1099-MISC
• View directions for completing the 1099-MISC

What to Fill Out On a 1099

To get a 1099-MISC, you’ll add your information under”Payer’s Name” and the contractor’s information under”Recipients’ Name”. Then you’ll reveal how much you paid “Gross Income”, box #3,”additional income”. You are not likely to have removed federal or state income taxes, so leave those boxes blank. Check out our complete post on the IRS 1099 type download or reporting the 1099-MISC directions for additional information.

When to Issue a 1099

You’ll issue a 1099-MISC form at year-end for any contractor who has earned $600 or more during the taxation year. A copy of the 1099 is delivered to the contractor as well as to the IRS. The same as an employee’s W-2, the 1099-MISC is to be shipped by January 31 following the tax year end.

Rules for Non-Resident Aliens and Foreign Entities

Although the 1099 is used for reporting payments to independent contractors, if the contractor is a non-resident alien or foreign business entity, an IRS Form 1042-S is used instead. This form accounts for exceptional tax withholding rates and international treaties. The IRS provides a webinar to explain when to use a 1042-S.

Other Kinds of 1099s

Because W-9s are used to assemble information for all kinds of future 1099 payments, we have included some of the common 1099s below. Each 1099 is connected to the IRS web page where the downloadable documents and instructions for using them are available.

1099 DIV — used to report dividend income and distributions
1099-C — Used for cancellation of debt in amounts of $600 or more
1099-K — Used for retailer cards and third party community obligations
1099-INT — Used to report interest income in amounts of $10 or more
1099-S — Used to report proceeds from property transactions

Preventing Mistakes When Issuing 1099s

While IRS rules are pretty clear, there are little mistakes that may require that you re-issue a 1099. For instance, make sure your 1099 form includes the full title of the builder. Double check the spelling, TIN number and the payment amount. (You do not want the contractor to have to pay taxes on $6,000.00 if they only earned $600.00).

Other common errors include:

• Issuing 1099s to workers. Employees should get W-2s instead.
• Issuing 1099s to corporations. You do not have to. Only independent contractors who work for you require 1099s. If you hire a corporate business to do a ceremony, like wash your office every week, no 1099 is needed.

The Main Point on W-9 vs 1099

The relationship between a W-9 and 1099 is that the W-9 gathers the data that’s later reported to the IRS on a 1099-MISC for builders that you pay $600 or more in a tax year. A duplicate of the W-9 is kept in your organization files, while copies of those 1099-MISC are offered to the IRS and to your builder. The contractor then uses the 1099 to report their income when filing their taxes.

To guarantee tax compliance when classifying workers as 1099 builders, look at using a low-cost judicial software like Gusto, that begins at just $45 per month for one employee. Gusto can manage contractor tax documents in addition to provide contractor payments and process entire year end 1099 forms.

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