As flexible employment continues to grow in popularity, the Internal Revenue Service (IRS) has introduced Form W-9, an IRS tax document for independent contractors, through which U.S. companies can obtain information about independent contractors. Generally speaking, self-employed individuals with U.S. employment status or U.S. companies are required to complete a W-9 form after receiving money from a client as a proof of their income and expenses.

What is the W-9 form

Free download blank 2024 W-9 Form

When an individual provides services to a business as an independent contractor, the business requires the independent contractor’s taxpayer identification number (TIN) to report the payment to the IRS, which is the most common use of the W-9 form.

Form W-9 is a standard tax document often used in business and financial transactions, and there are no compliance issues provided the format and content are correct. However, because the form involves the personal and private information of independent contractors, relatively more secure transmission methods such as manual transmission or encrypted email should be preferred during the transmission of the form to keep the personal information of independent contractors secure.

How to Complete a W-9 Form

A standard W-9 form requires the following to be completed.

• The legal name as it appears on the independent contractor’s tax documents
• The independent contractor’s taxpayer type
• Exemption (can be left blank)
• Independent contractor’s address
• State, city where the independent contractor is located
• Account number (optional)
• Name of person completing the form (optional)

Part I

Independent contractor’s correct TIN

There are several main scenarios:

• The independent contractor is an individual, then enter the independent contractor’s individual Social Security Number (SSN)
• The independent contractor is working as another business entity, then fill in their employer identification number (EIN)
• The independent contractor is a sole proprietor with an EIN, the preference is to fill out its SSN
• If the independent contractor has established a new business entity but does not yet have an EIN, apply as soon as possible and indicate “applied for”. During the application period, the independent contractor will be required to pay “withholding taxes”.
• Independent contractors who are foreign residents and do not qualify for an SSN should use their IRS Individual Tax Identification Number (ITIN).

Part II

Certification

Prior to signing and completing the W-9 form, the independent contractor will need to confirm the following.

• The form contains the correct taxpayer identification number for the independent contractor; do not forge or use another person’s ITIN.
• The independent contractor is not required to pay withholding tax if:

(a) the independent contractor is within the group that is not required to pay withholding tax;

(b) the independent contractor has not been notified by the IRS that it is required to pay withholding tax;

(c) the independent contractor is not required to pay withholding tax;

(d) the IRS certifies that the independent contractor is not subject to withholding tax.

Most independent contractors are not subject to withholding taxes. Generally, the tax is not due if the IRS is not notified.

• Status of Independent Contractors. Whether the independent contractor is a U.S. citizen or other U.S. person, or a resident alien.
• Enter the FATCA code, if available.

About Withholding Taxes

What is withholding?

If an independent contractor does not provide a Taxpayer Identification Number (TIN) or has an incorrect TIN, a percentage of their receipts will be required to be paid to the IRS.

Withholding is required in the following cases:

• The independent contractor does not provide the TIN to the business The independent contractor does not guarantee the TIN within the agreed time frame
• The IRS verifies that the TIN provided by the independent contractor is incorrect
• The IRS verified that the independent contractor had not reported the interest and dividends it was required to report on its tax return in the past, so additional taxes should be withheld
• The independent contractor did not assure the employer that it was not included in the additional tax withholding.

Penalties related to withholding

There are four main penalties associated with withholding.

• Failure to provide a TIN

Failure to provide the correct TIN to an employer business by an independent contractor, except for good cause, will result in a $50 penalty for each failure.

• Misrepresentation

An independent contractor is subject to a $500 penalty for misrepresenting its circumstances in order to avoid paying withholding taxes.

• Falsification of Information

Independent contractors who knowingly falsify information and certifications can face fines, up to and including criminal imprisonment.

• Misuse of TIN

Employer businesses that misuse TINs in violation of federal law may face civil or criminal penalties.

Solutions

Business compliance is the core focus of an enterprise’s international industrial expansion. Companies entering new country markets must have a thorough understanding of local labor laws, tax regulations, and other relevant laws and regulations in the place where they are going abroad.

Compliance takes precedence over labor laws, and companies must ensure that all business processes do not violate local laws to avoid potential legal disputes. Taxation, in turn, is the most complex part of the compliance process. A company’s tax obligations depend on the mode of conducting business abroad, the source of income, and the tax treaties between the home country and the country of operation.

If you have any questions about tax-related issues, working with an independent contractor overseas or hiring employees overseas, please feel free to ask. We will provide you with a full range of services including payroll, benefits, taxation, compliance, etc. through our overseas entities and professional legal team. We will assist you in hiring overseas employees and accurately paying their salaries and taxes in a fully compliant manner and provide you with a simple and efficient global tax and employment solution!