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The W-9, or Request for Taxpayer Identification Number and Certification form, will provide the employer with personal information such as the employees name, address, social security number, and more.
The information on this form will be kept by the employer. It does not need to be sent in to the IRS. The information on the W-9 will be used later in order to fill out other tax filing forms, such as a W-2 or a 1099.
The W-9 form is an important tool for employers to gather information about independent contractors or other employees. Verifying the information on this form and keeping it up to date will ensure you have the correct personal information on file when comes time to file taxes and send out other tax forms.
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Why you need a W-9 Form
It is a popular myth that independent contractors and freelancers are just that - free. That self-employment somehow erases the drudgery of filing taxes and watching one's income shrink. However, this could not be less true. An independent contractor has just as much tax rigmarole to deal with as an employee. The process of reporting freelance income is different than that of reporting employee income, but it's a still a process. This article is addresses the first step of this process, the first form of independent contractor payment relationships - the W-9.
Here's a run-down of how it works for both independent contractor and employer:
IF YOU'RE AN INDEPENDENT CONTRACTOR -
1. Your employer will ask you to fill out and return a W-9 form. On it, you will need to provide your full legal name, address, and Taxpayer ID number. Be sure that double-check all your information; you can even check permanent information against last year's returns or other official documents to be sure all details are consistent. One very important note: b e sure that you submit the finished W-9 to your EMPLOYER - NOT the IRS.
2. If you earn over $600 with an employer during the tax year, he or she will use the W-9 information to fill out a 1099. The 1099 is essentially a simplified W-2 that only reports gross income, but. You will need this form to file your own taxes, so don't be afraid to (politely) pester your employer for a copy if need be/
3. If you earn under $600 during the tax year, you won't need a 1099 . However, you will still have to fill out a W-9, and also report your income. No sum is too small for the hunger of the Self-Employment Tax!
IF YOU'RE AN EMPLOYER-
1. Have each independent contractor you take on fill out a W-9. This should be done as early as possible, ideally during the time of hire. If a contractor is taking forever to get the w9 form back, don't be shy about nagging. The IRS tends to be suspicious of independent contractors, so lag-time can potentially mark your company for an audit. And everyone knows how much fun that is.
2. If you've hired someone new to independent contracting, be sure that you hammer it home that they need to give you the W-9 Form. not the IRS. You'd be surprised how many newcomers mess this up.
3. If a contractor earns more than $600 from you during the tax year, you'll need to report his or her income using a 1099 form. You can download one of these from the IRS website and fill out the 1099 using the information provided in the W-9.
4. Submit one copy of the 1099 to the IRS and one copy to the contractor. Be sure not to forget about the contractor's copy - he or she will need that form during tax season!
Form W-9, also known as the Request for Taxpayer Identification Number (TIN) and Certification, is used by a person in the U.S. to give his or her correct TIN to the person requesting it. This tax form certifies that the TIN being given is correct (or that the person is waiting for a number to be issued), that the person is not subject to backup withholding, or that the person is claiming exemption from backup withholding if he or she is an exempt payee. If you intend to employ people to work for you, there is an excellent chance that you will need to issue a W9 form to those individuals. Furthermore, if you intend to work for an employer, you will likely need to complete this same form. Interestingly, the employer is not required to submit the form to the Internal Revenue Service; instead, they should keep it on file and use the information on the form when it comes time to prepare the employee's information returns. Employers can get paper copies of the W-9 form by calling 1-800-TAX-FORM to request them. However, it might be easier and more convenient for an employer to locate a W9 online. To get a W-9 online, simple log on to www.irs.gov and enter the document name into the search box on the page. Yet another alternative is for the employer to create his or her own "substitute" form, which is permitted as long as certain conditions are met and the form contains all of the necessary fields.
Speaking of those fields, it is important for both employers and employees to familiarize themselves with the fields (fillable parts) contained in the W-9 form. Here we will refer to the fields contained in the standard W-9 issued by the IRS rather than a homemade or "substitute" W-9. At the top of the IRS W-9 Form, under the words "Request for Taxpayer Identification Number and Certification," you will find a field for the employee to write or type his or her full name. Directly underneath the name field, there is the business name field; individuals who are simply working under his or her regular name typically disregard this field. Then, under the business name field, is a large box containing a number of checkboxes. This box is the federal tax classification field, and despite its large size, it is quite possibly the easiest field to complete because it only requires the worker to check the box that applies to him or her. For many individual workers, this will mean checking the box that says, "Individual/sole proprietor."
To the right of the federal tax classification field is the exemptions field, in which the worker would fill in any code(s) that may apply to that person if he or she is exempt from backup withholding and/or FATCA reporting. Next, going down the form, next you will find the fields in which to fill the employee's street address and city/state/zip code. Adjacent to those fields are an optional field to the right for the requester's name and address and an optional field below for any account number(s).
The final fields are located below the aforementioned fields, and they are the taxpayer identification number (TIN) field and the certification field. The TIN field is where most working individuals will enter their Social Security number, though some entities will enter their employer identification number (EIN) instead. The last fillable field, which is the certification field, merely requires the employee's signature and the date in which the W9 form is being signed.
Good news: One you've reached the certification field, that's the last of the fields on the form. The W-9 form is, you must surely agree, not the most complicated tax form. Just take it one field at a time, and you'll have the W-9 form completed in no time.
Filing tax forms can be confusing at times, and the Form W-9 is no exception. This particular form, also known as the Request for Taxpayer Identification Number (TIN) and Certification, is to be used by an individual in the United States for the purpose of providing his or her correct TIN to the person requesting it. The W-9 certifies that the correct TIN is being given (or that the individual is waiting for a number to be issued), that the individual is not subject to backup withholding, or, if he or she is an exempt payee, that the individual is claiming exemption from backup withholding. Employers are often very familiar with the W-9 form, as they are typically required to issue the form to people they've hired. Prospective employees, in turn, will usually become familiar with the form because they will typically receive one and will need to complete it.
Employees do not need to worry about acquiring copies of the Form W9, as it is the employer's responsibility to get copies of this form and provide one to each prospective employee. Employers, on the other hand, will benefit from knowing where to get copies of Form W-9. One method is to acquire paper copies of the W-9 form by calling a special toll-free telephone number, 1-800-TAX-FORM, to request them. In today's tech-infused world, however, many employers will prefer to look for copies of the W-9 online. It is actually not a difficult process to find a W-9 online, but it does require a couple of steps. The first step is to go online and log on to www.irs.gov (the official website of the Internal Revenue Service). The next step is to find the search box on the page enter the keyword into it; this will yield a link to the PDF document. There is still another alternative, though it is not used very often: Employers can create their own "substitute" W-9 form instead of using the form created by the IRS. This is allowed as long as a number of conditions are met, and the form must essentially contain the same fields as the version provided by the IRS.
Completing the form, which is done by the employee, is not a difficult process. After filling in the fields indicating the prospective employee's name, business name (if applicable), street address, and city/state/zip code, he or she should check the appropriate box for his or her federal tax classification (individual/sole proprietor, C corporation, S corporation, etc.). If any exemptions apply, the employee should complete the required information in the exemptions field, as well. Then there are a couple of optional fields, which may be left blank: one for account numbers, and the other for the requester's name and address. The final two fields, which are not optional, are the field for the taxpayer identification number (TIN)—which is usually a Social Security number but might sometimes be an Employer Identification Number (EIN)—and the certification field, which only requires a signature and the current date.
In regard to filing out the form, there's a bit of good news: Employers are not required to submit the W-9 to the IRS. Rather, they will need to keep the completed W-9 form on file, as they will probably need to use the information from that form during tax season, when the time comes to prepare the employee's information returns. The IRS is quite clear on this, as it states at the top of the form: "Give Form to the requester. Do not send to the IRS." Thus, while the prospective employee will need to "file" the W9 by completing it and handing it to the requester, the requester should simply "file" it away in a safe place. So, as far as filing tax forms with the government goes, the W-9 is one less thing for the employers—and the IRS—to worry about.
Who Should Use
Because the Gig Economy now occupies up to 40% of the workforce, anyone can utilize it if they either want to know more about the changing economic dynamics of freelancing or how to become a more successful freelancer. Whether you are an Uber driver, a newly minted PhD, a career consultant, a salaried professional, or simply between full-time jobs, this guide will serve as a helping hand while you navigate or start your career in the freelance world.
The inexorable headwind that all freelancers face is instability. Working as an independent contractor on part-time projects or as a full-time freelancer for a Gig Economy startup will always carry a consistent level of risk of your next paycheck being smaller than the previous one. Therefore, this guide is here to provide a concise, yet comprehensive reality check, so that you are fully prepared to protect, build upon and succeed in this new freelance-centric economy.
This guide is educational, inspirational and practical. It will teach you why the freelance economy is growing and how, as a freelancer, you can take advantage of that growth. Additionally, it provides multiple examples of freelance success stories, ranging from the world of journalism to startups. Most importantly, the guide concludes with a step-by-step tutorial to tax season for freelancers, helping you protect what you have earned over the course of a year.
How To Use
We formulated this guide to work for all categories of workers and freelancers.
For new freelancers, we propose you read the guide from beginning to end, in order to completely understand the framework of the Gig Economy and how you can carve out a workable space for yourself as a freelancer.
For seasoned freelancers, while we think it is certainly beneficial to be familiar with the macroeconomic, business and organizational architecture of the freelance economy, feel free to scroll down to the sections on which you need more information, maybe sections specific to your type of freelance work (e.g. academia). Maybe you just want to check out our tax tips and tax templates. We encourage you to jump around as you wish!
introducing The “Gig” Economy
The last decade has witnessed an explosion of independent contractors in the US labor force. New personal technologies allow folks to connect with people who need a lift or place to stay for the night, for example. While ridesharing companies like Uber and Lyft certainly did not inaugurate the “Gig Economy,” the meteoric rise of these and similar companies mark a fundamental shift in the American economy and its workforce. Freelance work offers flexible hours and the ability to work from home. In exchange, companies shed many of the costs of a full-time employee-health and unemployment insurance, retirement benefits, salaried pay, paid vacations, etc.
number of americans self-employed according to the bureau of labor statistics
The independent contractors that comprise this growing sector of our country’s labor force work in a variety of industries and across all levels of the corporate hierarchy. While ridesharing drivers dominate news headlines, there are also, for example, legions of Ivy-League-educated consultants drawing six-figure salaries working remotely on a per-contract basis throughout the globe. Even within industries, wages and benefits among freelancers vary significantly. For example, a recent study found that the hourly rate of Uber drivers ranges from $15-$53 per hour.
Emerging legal challenges have called into question the legality of how some companies classify and compensate independent contractors. Most notably, Uber is currently appealing a decision issued by the California Labor Commissioner’s Office that established Uber drivers as employees, rather than independent contractors. Should the ruling stand, Uber, which “employs” less than 1,000 people but “contracts” with around 200,000 drivers, could see its overhead rise by an estimated $4.1 billion, annually. Similarly, courts have found several other companies hiring independent contractors liable in a host of other violations including insufficient wages.
As such, attitudes toward the gig economy remain highly ambivalent. For every corporation or contractors praising the flexibility of contract work, the lawsuits of others suggest little more than worker exploitation. And it is undeniable that corporations increasingly turning to contract workers do so first and foremost to increase profit margins.
Despite the emerging challenges to the legality of the manner in which some companies compensate independent contractors, as mentioned above the Gig Economy is undeniably on the rise. Therefore, the purpose of this guide is to help contract workers maximize their opportunities in the Gig Economy and protect their earnings. While some freelancers may very well win classification as full-time employees in the courts, this guide is your safety net, so that if you have to remain a freelancer long-term you can successfully navigate the Gig Economy and make a worthwhile living.
The Reach of the Gig Economy
Just how dependent have workers become on freelancing? Recent data from researchers at Stanford University suggests that nearly 60% of workers derive at least 25% of their total income for the Gig Economy.
Not only is the number of workers taking on freelance work on the rise, the Gig Economy has infiltrated virtually all sectors of the US economy. Here is an overview of what freelancing in a range of industries looks like. For each industry, we offer key strategies independent contractors pursue in order to optimize their careers in their given industry. While obviously different workers bring different priorities to their participation in the Gig Economy, we’ve focused our recommended strategies around a few core values we think most freelancer’s share.
Recommended Strategies Around Core Values
The Great Recession led to draconian budget cuts and hiring freezes at many of the nation’s colleges and universities. As a result, thousands of newly minted PhDs are finishing graduate school and entering a dismal job market. With bills to pay and not enough tenure-track jobs to go around, many young academics are turning to the Gig Economy to provide the economic security no longer available in higher education.
Last year, The Chronicle of Higher Education, academia’s leading periodical, published Katie Rose Guest Pryal’s, “A Manifesto for the Freelance Academic,” detailing how new PhDs can successfully navigate the new realities of the academic market and “take some power back.”
Pryal’s Manifesto Consists of a Five-Pronged Mantra:
Writers, photographers, designers, etc. worked as freelancers long before anyone coined the phrase, “Gig Economy.” Yet, with a precipitous decline in what few stable jobs there were in various multimedia fields, workers in these industries have come to rely more heavily, if not entirely, on freelance work.
The most important tool for freelancers in this field is their familiarity with various forms of media. It is essential, therefore, to use that knowledge and literacy to leverage various technology and media platforms--e.g. Facebook, Twitter, LinkedIn--to promote yourself and your work and build your own personal brand.
More specifically, the Freelancers Union, which “promotes the interests of independent workers through advocacy, education, and services,” advocated that workers in media fields market themselves as a resource, demonstrate the diversity of your interests and talents, maintain relationships with past clients, and always listen.
Shea Serrano is one of the more impressive examples of successfully navigating the freelance economy as, in his case, a writer. Serrano has no formal training as a writer. He was a teacher that only began to write seriously in 2008 after his then pregnant wife was put on bedrest, forcing him to find additional work to supplement their income. He found work writing about popular culture--rap music, in particular--for a Houston Newspaper which led to a job at Grantland, which led, most recently to a New York Times Bestselling book entitled, The Rap Year Book.
In an interview with GQ Magazine, Serrano, when asked about his start as a writer, explained that he literally Googled “work from home jobs” and “writer” was a common answer. He then found a need in that industry--local newspapers hardly covered rap music (a topic he cared passionately for)--and found various ways to leverage his knowledge of the music genre into paid labor and eventually national notoriety. Additionally, Serrano has taken the notion of personal brand building via technology, specifically Twitter, to heart; on Twitter, Serrano constantly interacts with fans in a lighthearted and personal manner, simultaneously increasing his personal brand of authenticity and his customer base of millennials who are constantly perusing social media during their workdays. Serrano’s personal brand building worked wonders during the launch of his most recent work, The Rap Year Book, in which he prompted his followers, through jokes, challenges and giveaways, to make the book number one on Amazon - a strategy that not only worked, but propelled the book to the New York Times Bestselling list, as aforementioned. In short, Serrano presents an example of how, regardless of education or professional training, freelancing can pay enormous dividends for those willing to dedicate their lives to crafting their passions into their professions.
Freelancing in Tech Startups
As with academia, community is imperative, and the internet provides the best resource to connect you with startups looking to hire freelancers, and other freelancers successfully navigating the startup world who can connect you with employment opportunities and help you build relationships that will bear fruit down the road.
The Freelancers Union is also an important resource. Joining the organization is not only free, but the union provides a variety of resources to help connect you with freelance work. They also offer health care benefits members can buy in to! Moreover, the Union publishes a large amount of content on their website regarding securing freelance employment in fields tailored to their membership.
The success of Kiip--a mobile phone app that enables companies to reward clients for virtual achievements--illustrates the entrepreneurial potential for freelancers to leverage their work into a major commercial success. Kiip was started in 2010 by a then nineteen year-old Brian Wong. Wong began his career as a freelancer, designing ads using Photoshop on his personal computer. His experience freelancing in digital advertising sparked ideas about how to improve mobile game advertising. Those ideas became Kipp, whose clientele now includes Disney, Carl’s Jr, Kodak, PepsiCo, and Sony.
As the above examples illustrate, freelancing combines a host of variables and considerations. Many of these are consistent across fields but many more are specific to your chosen field. What unites freelancers, in our view, is a desire to maximize your opportunities, strengthen your position in the Gig Economy, and connect with other freelancers and organizations in your field that will allow you to build community and networks that will grow your career.
What sorts of taxes are we talking about?
Are all self-employed workers subjected to taxation?
Essentially, yes. There is, however, one exception, which relates to the profitability of your work or business. Here’s the formula:
How do I make my quarterly SE tax payments?
You’ll need to fill out a 1040-ES form in order to calculate the payment amount. Remember, the quarterly SE tax payments covers the
Social Security and Medicare portions of your tax obligations. Your annual tax return covers the income tax bill.
What form do I use and how do I file my annual return?
Depending on the nature of your contracting and self-employment, you’ll fill out a 1040 form.
What about 1099s? 1099 forms are sent by companies to contractors reflecting the payments the company made for contract work. They are not, however, documents independent contractors submit to the federal government. For example, an independent contractor who has done work with several companies throughout the year will receive a 1099 from each company. They will then fill out a single 1040, reflecting their total freelance income, and submit it to the government.
How do I minimize the tax burden?
Two important deductions as a self-employed worker
When calculating your self-employment tax obligation, you can subtract half of the self-employment tax before calculating your tax rate. Follow the example below for someone with a net self-employment income amounts to $40,000:
You can claim half of your SE tax obligation as an income tax deduction on your 1040. Follow this example for a $1,500 SE tax payment.
Taking advantage of both of these deductions will insure that you minimize your tax burden and maximize your earning potential as a freelance worker.