When it is time to file taxes, figuring out which tax forms to use and how to file them can be challenging, especially for independent contractors and business owners that hire them. It is a delicate business activity such that slight errors can cause significant problems like getting fined or penalized by the government. Therefore, small businesses and independent contractors must know everything about the two IRS forms - The W-9 form and Form 1099.
This article will cut through the complexities and explain all there is to know about these two forms and how you can use them.
What are W-9 and 1099 forms?
W-9 forms and 1099 forms are documents required by the Internal Revenue Service (IRS) to obtain tax-related information about contractors working in an organization. While both forms have similar purposes, they are different and serve varying objectives.
A w-9 form is an IRS form provided by the employer to an independent contractor. It contains essential information such as the independent contractor’s legal name, home address, Taxpayer Identification Number (TIN), and Social Security Number (SSN). Before an employer contracts service to an Independent contractor, the independent contractor must submit the filled W-9 form provided by the employer.
The essence of collecting the W-9 form is to help identify contractors and enable employers to handle or process their taxes efficiently.
When to use the W-9 form
The W-9 form is primarily for any organization planning to hire and pay independent contractors more than $600 per year. Without a completed W9 form for each freelancer, the employer will not have the necessary information to fill out the 1099 form while filing taxes at the end of the year.
If the independent contractors have issues with filling the w9 form, the IRS website provides a comprehensive guide on filling the form.
There are various types of Form 1099 used to report taxable income. However, we will discuss the Form 1099 document that reports for non-employee compensation for this article. Also referred to as the 1099-NEC, this form reports non-employee payments totaling more than $600 per tax year. Unlike the W-9 form, Form 1099 must be filled out before the 31st of January and sent to the IRS.
When to use the form 1099
The form 1099 can be used if an employer or an organization carried out the following:
- If the employer made payments to a worker who’s not a full-time employee,
- If the employer made payments to a contractor solely for a service offering,
- If the payments made to an individual or an entity equals or exceeds $600 per year.
Other types of 1099 forms
- 1099-S: This form collects information on proceeds from any real estate transaction.
- 1099-INT: This form usually comes from banks where the employer has interest-bearing accounts. It is used to report incomes of $10 or more.
- 1099-DIV: This form reports on dividends from stock investments.
- 1099-C: This form is collected for the cancellation of debts that are $600 or more.
- 1099-G: This form is used by the government or its agencies to report any income or payment a person has received from them.
W-9 vs. 1099 form: The differences
To understand the differences between the W-9 form and the form 1099, this table highlights the key differences.
Putting compliance on auto-pilot with Skuad
Skuad’s global employment and payroll platform enables you to send out locally compliant contracts and file relevant tax documents compliantly with country-specific employment laws. Skuad can help you streamline your W9 form and Form 1099 paperwork so you do not have to run into any legal issues with the IRS.
Hiring and managing independent contractors should not come with tax-laden hassles - Skuad can simplify the legal complexities and guide you through the statutory requirements of filing the proper documents and building teams in over 160 countries.
To know more about Skuad, book a demo today.