Independent contractors or freelancers often find it challenging to understand which forms need to be filled out whenever tax season arrives. Generally, independent professionals like you may get confused about whether to fill out a W9 or 1099.
Some questions like, “Is a 1099 the same as a W9?” may come to mind. If you have similar problems when filing tax returns, we will help you distinguish between Form W9 and 1099.
In case you are working with a company, but not as a full-time employee, you must submit your tax details to the employer. Similarly, the employer also needs to report how much money they have paid to you. For that reason, we have forms W9 and 1099.
Although they are both related to taxes, they have completely different purposes. In this complete guide on w9 vs 1099, we will demystify the meaning and differences between these IRS forms. So, let’s find out.
What is Form W-9?
The IRS form W9 is a request for collecting a Taxpayer Identification Number (TIN) or Social Security Number (SSN) from employees. Basically, freelancers and contractors need to fill in the required details in the form and hand it over to the employer. Once submitted, it allows the employer to report how much amount they paid during a year to the IRS.
If you have worked for one or more companies, the employer(s) would ask you to submit the tax details for tax reporting purposes. Notably, the W9 form has no submission deadline, but you can share it with the employer as soon as you are done.
What is Form 1099?
The IRS Form 1099 is to report the non-employment income of individuals who have worked for your company. The employer lets non-employees like freelancers know how much money has been paid throughout the year and simultaneously, reports it to the tax authorities.
The Form 1099 only comes into effect if freelancers or contractors receive more than $600 as a payment. In simple terms, Form 1099 is used by employers to inform the IRS about the total amount paid to freelancers or contractors. It’s like the employer telling the IRS, “We paid this much money during the year”.
Retrieve Tax Data Easily from Moon Invoice
Get Moon Invoice to keep your tax data handy in the cloud storage and file your tax returns without wasting a minute.
Differences Between the Forms W-9 and 1099
Let us go through the factors that explain what is the difference between w9 and 1099 forms.
| Differences | Form W9 | Form 1099 |
|---|---|---|
| Information | Form W9 is used for collecting an individual’s personal details like legal name, address, and Taxpayer Identification Number (TIN) or SSN. It is a request form for the information needed by the employer to report payments to the IRS. | Form 1099 consists of the total amount paid by a business to a freelancer or independent contractor during the tax year. The form is used to inform the IRS about payments to ensure proper tax compliance. |
| Purpose | The purpose of Form W9 is to fetch accurate tax information from the employees so that the employer can report payments correctly to the tax authority. It ensures that the person is responsible for taxes, such as self-employment tax. | The purpose of Form 1099 is to document the total income earned by non-employees and report it to the IRS. This way, it also aids in tracking taxable income for individuals not classified as employees. |
| Reporting | Any non-employment individual earning money from a business needs to report tax information on the W9 form. This form won’t be passed to the IRS but will stay with the employer to fill out other forms like 1099. | Form 1099 is filed with the IRS by the employer and a copy is sent to the freelancer or contractor. This ensures both the IRS and the individual are aware of the reported income. |
| Deadlines | There isn’t any specific deadline to submit the W9 form. However, one should complete it and submit it to the employer as quickly as possible to avoid further delays in reporting. Once shared with the employer, they can start preparing Form 1099. | The payer needs to send Form 1099 to the IRS at least by the 31st of January if filing online. However, the deadline is the 28th of February in case the payer decides to file by mail as the IRS offers more time for paper submissions. |
| Penalties | Freelancers or contractors failing to submit Form W9 or entering the wrong tax details could face penalties ranging from $50-$450. Penalties also include the employer withholding a portion of your payment as stated by the IRS. | Businesses failing to share the Form 1099 on time may receive penalties of up to $300. The penalties may vary depending on the actual reason for not submitting the form. The penalties may go up in case of intentional disregard. |
Who Gets W-9 and 1099 Forms?
Independent professionals like contractors, consultants, or suppliers who reside in the US or are resident aliens will receive the Form W9. On the other hand, businesses paying money to the contractors upon completion of their work will get the Form 1099. Payees (contractors or freelancers) need to specify their Taxpayer Identification Number (TIN) or Social Security Number (SSN) while filling out the W9 form. If an individual is a resident alien, then he or she needs to submit an Individual Taxpayer Identification Number (ITIN).
Payers (businesses or any hiring party) will need to fill in 1099-MISC and 1099-NEC by mentioning the amount paid to the contractors. Remember businesses must complete Form 1099-NEC in case they have paid an amount higher than $600 for availing contractor’s services.
When to Request or Issue a W9 and 1099?
If an individual has received money from the business, they can request a W9 form at the time of the onboarding process. Initially, the payer may withhold some portion of the payment until the contractors or suppliers send the accurate tax information. Such practices are followed by businesses to prepare tax forms and ensure timely submission to the IRS.
So, the payee can request the W9 Form from the payer, while the payer uses the W9 Form only for tax reporting purposes. They keep W9 Forms for tax records. Requesting form W9 or 1099 is not just about entering a few details, but also familiarizing yourself with tax obligations. Hence, the payee can request a W9 form at the time of signing a new contract, or you will receive a 1099 from the employer if the payment is higher than $600 in a year.
Which Form is More Beneficial to Employers?
Both Form W9 and 1099 are crucial to make sure you stay tax compliant, regardless of how much money was paid to freelancers or contractors. The Form W9 assists the employer in beginning their tax filing preparations with the already submitted details. While, the Form 1099 acts as an official record of the payments, ensuring transparency and compliance with tax laws and regulations. As a result, both IRS forms are beneficial to employers as they help fulfill their tax obligations.
Ensure Accurate Tax Filing with Moon Invoice
Don’t let paper-based documents impact your accuracy. Fetch tax data directly from invoices stored on Moon Invoice and eliminate the need for revisions.
Conclusion
Both Forms W9 and 1099 are essential as far as your tax obligations are concerned. At first glance, it might seem daunting, but having an in-depth knowledge of what and why you should fill in these forms will make your tax compilation process a breeze. If not manually, you can consider filling tax forms electronically to save time and reduce unwanted revisions.
You can even consider getting accounting software like Moon Invoice to manage your tax details efficiently rather than making manual entries on spreadsheets. This automated process will speed up your taxation process without compromising accuracy. Try using Moon Invoice now at no cost.
Frequently Asked Questions
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
