Understanding Form W-9

How Does it Work and When is it Necessary?

It is common for small business owners to work with independent contractors: individuals or small companies who provide services to the small business without being an employee. This can be advantageous to the small business owner, since the income tax, Social Security, and Medicare taxes are not required to be withheld from pay for independent contractors. However, it is important to understand the reporting requirements when dealing with independent contractors. The foundation you will use for reporting is Form W-9.
Form W-9, Request for Taxpayer Identification Number and Certification, is used to obtain important information from the independent contractor. This includes the contractor’s name and business name, type of entity, and the business’ tax identification number (either a social security number or employer identification number). This form is filled out by the independent contractor and retained for your records.
Common examples of independent contractors small businesses may work with include:
  • Repair and maintenance technicians
  • Consultants, agents, and brokers
  • Engineers and architects
  • Lawyers
  • IT professionals
  • Bookkeepers
Independent contractors differ from employees in that business owners have much less financial and behavioral control over the independent contractor. The independent contractor often provides their own supplies and equipment to perform their job, and often provides services for other businesses in addition to your own. It is not always easy to identify whether someone should be classified as an independent contractor or an employee. If you have any questions regarding these classifications, we can assist you.
When you pay an independent contractor over $600 in a calendar year, you may be required to issue them a Form 1099-MISC for Miscellaneous Income. The 1099-MISC is generally not required if payments were paid to a C-corporation or S-corporation, even if payments were over $600. We recommend asking about filing status with your independent contractors to assure you are in compliance with filing requirements. There are some exceptions where a 1099-MISC is still required for payments to C-corporations and S-corporations, including:
  • Medical and health care payments, to be reported in box 6 of 1099-MISC
  • Attorneys’ fees, to be reported in box 7 of 1099-MISC
  • Gross proceeds paid to an attorney, to be reported in box 14 of 1099-MISC
  • Substitute payments in lieu of dividends or tax-exempt interest, to be reported in box 8 of 1099-MISC
  • Payments by a federal executive agency for services (vendors), to be reported in box 7 of 1099-MISC
The information collected from Form W-9 is used to complete Form 1099-MISC. All forms 1099-MISC you issue must be reported to the IRS in total on Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Forms 1099-MISC and Form 1096 must be issued and reported to the IRS by January 31 of each year.
If you will be paying an independent contractor over $600, it is important you obtain a Form W-9 at the time the work is performed. This assures you will have all the information you need when it comes time for reporting. Our bookkeeping department can assist you with completing and submitting Forms 1099-MISC and 1096. Please reach out to us if you have any questions regarding these forms or the use of independent contractors.

Cody Sonnenberg

Employee Spotlight | Cody A. Sonnenberg

Cody joined the Soukup, Bush & Associates team in August of 2019. He first graduated from Colorado State University with a Bachelor of Science in Accounting, then again with a Masters of Accountancy in Taxation. He now works as an associate, helping to prepare both individual and business tax returns.

In his spare time, Cody enjoys going to local cornhole tournaments, exploring new places to eat and drink, and spending time with friends and family.

Important Deadlines

March 16, 2020 – Federal and state income tax returns are due for flow-through entities, including partnerships and S-Corporations.

Please Note: In order to better serve you, extended business returns will be prepared after the individual filing deadline, April 15, 2020. Thus, we will also be filing an extension for your individual return if we extend your business return.

March 23, 2020 – Please provide all documents and required information for individual and C-corporation tax returns by March 23, 2020. In order to provide our best service, your tax return will be extended and completed after April 15, 2020, if there is still outstanding information needed by March 23, 2020.

March 31, 2020 – Forms 1099 and Form 1096 must be filed with the IRS for all payments other than non-employee compensation if the form is electronically filed with the IRS.

April 15, 2020 – Federal and state income tax returns are due for individual taxpayers, C-Corporations, and Estates and Trusts.