Form 1099 and W-9 are two common forms encountered by employers. While these forms appear similar at first look, they are used for different purposes. This article provides an in-depth comparison of Form 1099 and Form W-9 so employers can decide which form is more appropriate for their business.
What Is a Form W-9?
The W-9 is a tax form employers use to collect the necessary information from independent contractors and freelancers for tax reporting purposes. It gives the employer the information required to report payments to independent contractors or freelancers to the IRS.
When must employers use Form W-9?
Employers who intend to hire a contractor must use a W-9 form. Before an employer sends payments to the contractor, the independent contractor must fill out the form. To ensure that the employer has all the information they need to report payments made to an independent contractor to the IRS, this information must be compiled prior to making payments.
Discover more on tax deductions for independent contractors here.
How to fill out a W-9 Form
The independent contractor must provide their government name, residential or office address, Taxpayer Identification Number (TIN), and business type in order to complete a W-9 form. Before the employer makes any payment, the independent contractor must fill out the form.
W-9 Form Advantages for Employers
- Enables the issuance of Form 1099: By collecting all the required information beforehand, the employer can avoid the inconvenience of hunting down contractors at the end of the year in order to obtain this information.
- Helps employers avoid tax penalties: It is mandatory to report payments made to independent contractors to the IRS to avoid being fined. The W-9 form ensures employers have all the information necessary to report payments to the IRS.
- Ensures accuracy: The W-9 form ensures that the information supplied by the contractor or independent contractor is accurate. This can save employers time and money over time by reducing the likelihood of tax reporting errors.
- Saves time: Employers can save time by collecting the required information in advance so that they do not have to spend time later attempting to acquire the information they need to report payments to the IRS.
Read more on how to tax your digital nomads in this employers’ guide.
Disadvantages of W-9 Form for Employers
- No payment information: The W-9 form contains no information regarding payments made to freelancers or independent contractors who were contacted for a job. The W-9 Form provides no other information besides the taxpayer's identification number. Consequently, it, unfortunately, complicates recordkeeping for employers who must document contractor payments for future purposes.
- Risk of incomplete and inaccurate information: If the information on the W-9 form is inaccurate or incomplete, it can cause problems with tax reporting. To avoid issues with tax reporting, employers must ensure that the information on the form is accurate and up-to-date.
- Extra paperwork: The W-9 form requires employers to complete additional documentation, which can be burdensome for small businesses and organizations with limited administrative resources.
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What Is a Form 1099?
Form 1099 is a tax form used to report payments made to independent contractors by employers. The form provides information regarding when and how much the employer pays the contractor. It is intended to provide the IRS with enough information regarding payments made to independent contractors.
When should a Form 1099 be issued?
Employers must issue Form 1099 to independent contractors who have received payments of $600 or more in a tax year. By January 31 of the following year, the employer must issue the form to the contractor. Also, the employer may incur penalties if they fail to provide the form.
How to fill out Form 1099
To fill out Form 1099, the employer must provide the name, address, and TIN of the independent contractor. Also, the employer is responsible for providing the payment information. The employer is required to give the independent contractor the form before the 31st of January and submitted to the IRS on or before February 28 of the following year.
Advantages of Form 1099 for Employers
- It contains comprehensive information: Form 1099 provides detailed information on payments made to independent contractors. Employers must provide this information to disclose payments made and avoid penalties for non-reporting.
- Full Compliance with IRS regulations: Because Form 1099 is a crucial document the IRS requires, providing this form is an essential means to avoid penalties.
- Documentation: Form 1099 documents payments made to independent contractors. This form of record-keeping is helpful for monitoring expenses and tax purposes.
- Ensures accurate income reporting by contractors: Form 1099 encourages independent contractors and freelancers to disclose their income precisely to the IRS.
Disadvantages of Form 1099 for Employers
- Extra paperwork: Issuing Form 1099 means that there is extra paperwork for the employer.
- Increased work for employers: For smaller enterprises or those with limited administrative resources, issuing Form 1099 can be an administrative burden.
- Prone to errors: The issuance of Form 1099 increases the chances of errors in tax reporting. Employers must ensure that the information on the form is error-free and accurate.
- Penalty risks: The employer risks incurring penalties if they fail to issue Form 1099. Consequently, employers must ensure that they are complying with IRS regulations.
W9 vs. 1099: What's the difference between W-9 and 1099?
Which form is more beneficial to employers?
Employers decide which form is beneficial based on what they or the organization require. Form W-9 is used to collect information from freelancers and independent contractors, while Form 1099 is used to submit payments made to them. Employers who hire independent contractors have an obligation to use the W-9 form to collect the required information in advance. As a result, the employer has the necessary information to accurately report payments to the IRS. Employers working with many independent contractors may discover that issuing Form 1099 requires more time and documentation.
How Skuad can help
Choosing the appropriate form for your business requires thoroughly evaluating your requirements and the potential benefits and drawbacks. Employers should consider partnering with a global employment and payroll platform like Skuad in order to make a well-informed decision that meets their business needs and complies with tax and labor regulations.
Skuad’s global employment and payroll platform enables you to hire and onboard independent contractors and full-time employees in over 160 countries compliantly. With Skuad, you do not have to worry about legal risks and fines, as Skuad ensures your organization is fully compliant with country-specific laws and regulations. Skuad can help you establish compliance as part of your corporate identity without the hassles.
To know more about Skuad, talk to Skuad experts today.
How much taxes will I pay on a w9?
There is no fixed amount to pay as tax as it depends on factors such as income and other deductions. However, it is best to consult a tax professional to determine your tax liability.
Do I pay more taxes with the 1099?
Yes, independent contractors with a 1099 form are responsible for remitting both the employer and employee portions of Medicare and social security taxes, which results in higher tax burdens than conventional employees.
Should I be a 1099 or W-2 employee?
It depends on the kind of job you are into. You will be classified as a 1099 contractor if you are an independent contractor. However, if you are employed in an organization, you are a W-2 employee.