What You Need To Know Before You Sign A W 9 Form

What is Form W-9?

Form W-9 is a tax document that must be signed by independent contractors to provide a taxpayer ID number (Social Security Number or Employer ID). If the employer doesn’t have a taxpayer ID, or if the taxpayer ID is incorrect, the independent contractor must have federal income taxes withheld, known as “backup withholding.” Form W-9 is a standard tax document often utilized in business and financial transactions. So by itself, a W-9 doesn’t pose many problems. Still, there are some things to be aware of.

Provide Your Business Information

Form W-9 requires you to include information on your business type.  The IRS has somewhat simplified Form W-9. To complete the new W-9, follow these steps: 

FATCA

FATCA is the Foreign Account Tax Compliance Act that requires foreign financial institutions and other non-financial foreign entities to report on foreign assets held by U.S. account holders. On Form W-9, some individuals may have to report foreign income through the FATCA process. Most individuals and businesses are exempt from this reporting requirement. The certification section includes a statement that you are exempt from this requirement. If you aren’t exempt, you’ll need to provide additional information.

Backup Withholding

Backup withholding is required for a variety of reasons. The most common reason for backup withholding is if the signer of the W-9 doesn’t have a valid taxpayer ID number or the number is missing. If you submit a W-9 without a valid taxpayer ID, or if your tax ID is invalid, your employer will be required to withhold federal income taxes from your payments at a flat 24% rate.

Protect Your Information

The W-9 contains sensitive information that should be kept private and secure. Don’t send your completed W-9 as an unsecured or unencrypted email attachment. Instead use secure methods of transmission, such as hand delivery, mail, or encrypted file attachments to an email to the person who requested it.

Receiving a W-9 When You Expected a W-4

If you are starting a new job and your new employer hands you a W-9 to fill out, ask if your new job is as a self-employed contractor or as an employee. Employees fill out the Form W-4 to set their tax withholding level. Self-employed persons (independent contractors) don’t have income taxes or Social Security/Medicare taxes withheld. You and your employer can discuss the issue of your status, but it’s the IRS that ultimately decides whether a worker is an employee or an independent contractor (self-employed).