W-9 vs W-4 Forms: What’s the Difference?
There are over 800 different Internal Revenue Service (IRS) tax documents in the United States.
At the end of the tax year, it’s essential that you understand which forms apply to you and how to fill them out correctly.
Two of the most common tax documents are Forms W-9 and W-4. Due to their similarities, these are also the forms that people get confused by the most.
In this article, we outline what the differences are between Forms W-9 and W-4, as well as how to fill them out and create them easily online.
A Quick Recap on the Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) is a US government agency responsible for the collection of federal taxes and enforcement of tax laws.
It was established in 1862 by President Abraham Lincoln and operates under the authority of the U.S. Department of Treasury.
The primary purpose of the IRS is to collect individual income and employment taxes, as well as corporate, gift, excise and estate taxes.
What Is a Form W-9?
The Form W-9 is also known as the Request for Taxpayer Identification Number (TIN) and Certification.
This is a one-page tax form that employers use to get the TIN from self-employed workers and independent contractors.
Who qualifies as an independent contractor?
An independent contractor is defined by the following characteristics:
- Workers who have the majority of control over when and how they complete a task
- Those who not receive health insurance, 401(k) matching and other benefits from employers
- Individuals who pay all their own taxes
Other commonly used terms for independent contractors are vendors and freelancers.
Some examples of independent contractors are consultants, graphic designers, writers, landscapers or repair persons.
One of the defining features of an independent contractor is that they receive non-employee compensation from the companies that they do work for.
Some examples of non-employee compensation include fees, commissions, prizes, and awards for services completed.
The Form W-9 also provides other personal information to employers, such as the independent contractor’s full name and address.
Unlike other tax forms, the Form W-9 is not filed with the IRS. Instead, it’s submitted to the independent contractor’s supervisor or the company’s payroll department.
Towards the end of the tax year, independent contractors must submit a Form W-9 to the companies they did work for so that they can get a 1099-MISC in return.
Independent contractors have to submit a 1099-MISC to the IRS if they were paid more than $600 that year.
It’s also important to note that the Form W-9 should be submitted to employers before the deadline on 31 January.
If this date falls on a Saturday, Sunday or a legal holiday, the filing deadline would be the next business day.
Any income you receive from a client who classifies you as an independent contractor rather than as a formal employee is classified as non-employee compensation.
Form W-9 and Tax Implications
The Form W-9 also acts as an agreement that independent contractors are responsible for withholding taxes from their own income.
Full-time employees have their federal income taxes, Medicare and Social Security taxes withheld from their paychecks by their employers.
Since independent contractors are self-employed, they do not have employers to make these withholdings on their behalf.
What Do Independent Contractors Include on a Form W-9?
- The name of the payee or their business name
- The payee’s federal tax classification. This could be a single-member limited liability company (LLC), C Corporation, S Corporation or an individual/sole proprietorship.
- The payee’s current, full mailing address.
- The payee’s taxpayer identification number (TIN), which includes either an Employer Identification Number (EIN) or Social Security number.
What Is a Form W-4?
Form W-4, also known as the Employee’s Withholding Allowance Certificate, is a federal form that employees must complete when starting a new job.
Employers use the Form W-4 to determine how much income tax to withhold from their employees’ paychecks.
The amount of income tax withheld from the employee will be based on their wages and the number of withholding allowances they qualify for.
Withholding allowances are based on the employee’s filing status, how many dependents they have, and their anticipated tax credits and deductions.
It’s important that employers make sure that the information on each of their employee’s’ Form W-4s is correct.
If the incorrect amount is withheld from an employee’s paycheck, they could face expensive tax bills or penalties from the IRS.
Employees must ensure that their Form W-4s are submitted to employers within the first month of starting a new job.
What Do Employees Include on a Form W-4?
- Full name, postal address and ZIP code
- Social Security number
- Marital status
- How many dependents they have
- Any additional money the employer should withhold. This could include Medicare taxes or passive income from investments
Comparing Forms W-9 and W-4
Now that you have a better idea of what Forms W-9 and W-4 are, let’s take a closer look at their differences and what their implications are for taxpayers.
Form W-9 vs W-4: Key Differences at a Glance
| Form W-9 | Form W-4 |
| Independent contractors fill out a Form W-9. | Employees fill out Form W-4. |
| Self-employed workers use the Form W-9 to provide their taxpayer identification number (TIN) to companies that they do work for. | Employees use the Form W-4 to inform their employers of how much income tax to withhold from their paycheck. |
| W-9 Forms should be submitted to employers before the 1099 deadline, which is usually 31 January. | W-4 Forms should be submitted to employers within the first month of starting a new job. |
| Businesses send a blank Form W-9 to complete before independent contractors start working for them. | Ideally, employers should issue their employees with a Form W-4 on their first day. |
| Independent contractors can file a Form W-9 annually, but it is not required. | Employees need to file a new Form W-4 each time they start a new job or need to report changes to their financial situation. |
The main difference between these two documents is that a formal employee fills out a Form W-4, whereas a self-employed worker fills out a Form W-9.
It’s also important to remember that a Form W-9 is simply an “information return” that gives a business an independent contractor’s personal details and is not submitted to the IRS.
As we mentioned earlier, independent contractors submit a copy of the Form W-9 to the companies they did work for so that they can get a 1099-MISC in return.
Unlike a formal employee, an independent contractor has the sole responsibility of making sure that they pay the correct amount of income tax to the IRS.
If the independent contractor works for multiple different companies, it’s likely that they will have to fill out several Form W-9s in the same year.
In contrast, the Form W-4 is filled out by full-time employees.
The W-4 Form has important implications for employers because it outlines how much tax to withhold from each employee’s paycheck.
Employees must fill out a new Form W-4 whenever their financial situation changes.
In addition to starting a new job, this could include a change in marital status, having a child or a pay raise.
All of this information is relevant to an employer because it could indicate a change in the employee’s payroll taxes at year-end.
Do I Have to Fill Out Forms W-9 and W-4?
Self-employed workers don’t always need to fill out a Form W-9. However, many businesses ask independent contractors to complete one to avoid costly penalties from the IRS.
If an independent contractor refuses to complete a Form W-9, the company that they work for can withhold a certain percentage from their pay.
This process is known as backup withholding and could mean that the employer withholds 28% of your pay and submits it to the IRS.
If you choose not to complete a Form W-4, the employer will still provide you with a paycheck.
However, employers will have to withhold income taxes at the highest rate for single filers with no other adjustments. This could mean that you pay more tax than what is necessary.
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