It’s easy to confuse W9s and 1099s so here’s a primer on what entrepreneurs and freelancers should know.
A Little Background
In the ever growing freelance economy in Kansas City, more and more people are being paid as independent contractors rather than as traditional employees. When you are paid as an employee, your employer reports your income to the IRS and the state and withholds a portion of your income for income and other taxes and remits that to the IRS and the state. When you are paid as an independent contractor, the party paying you doesn’t do that. Rather, it is your job to withhold and pay the IRS and the state.
As a result, it’s possible for you to get paid but never tell the IRS you’ve been paid. That’s why we have W9s and 1099s.
What’s a W9
IRS Form W9 is an informational document you can provide to your client that contains information about you or your company. It will include the necessary information for them to be able to tell the IRS they are paying you money for a service. If you are an individual, you’ll provide your SSN or EIN. If you are operating as a business, you’ll provide your EIN.
What’s a 1099
Your client will use the information in the W9 to generate 1099s at the end of the year to any contractor which they pay $600 or more. The client will give you a copy of the 1099 and also a copy to the IRS. The IRS will then use the 1099 to make sure you report that income on your tax return.
You should complete a W9 and keep a digital copy in your files. That way, when a client requests one, you can easily forward it to them.