What is Form W9?

Form W-9, also referred to as “ Request for Taxpayer Identification Number and Certification,” is an IRS form that US payers or withholding agents (i.e. the company paying a contractor) to gather a US-based contractor’s taxpayer identification number (TIN), effectively authorizing them to work as a contractor and file a 1099 come tax season. 

The following article discusses “What is Form W9?” and how the form effectively works when hiring a contractor. In addition, we provide suggestions for business owners to more effectively manage W-9s and other employment documentation when growing your workforce. 

Who is Form W9 for? 

The shortest way to think about this is that any US-based person or entity will need to fill out a W9 to file a 1099 as a contractor. This includes:

• Individual contactors
• Single-member LLCs
• Sole proprietors
• Residents with US Tax Residency
• C Corporations, S Corporations
• Partnerships
• Pass-Through Entities
• US Individuals Receiving Prizes or Awards

The only exception is a US-based contractor working for a foreign company with no US trade-or-business that is paying from abroad (i.e., an American citizen contracting with a German business paying from a German bank account), since the paying entity is not American. 

The table below provides a more detailed breakdown. 

Which US-based contractor needs a W9?

Scenario	US Trade-or- Business?	Paying Entity Location	Does the Payer File/Collect…
			A 1099?	A W9?
Foreign company	No	Foreign	No	No
		US-Based	Yes	Yes
Foreign company w/ US	Yes	US-Based	Yes	Yes
US-based intermediary	Yes	US-Based	Yes	Yes
US company paying US contractor	Yes	US-Based	Yes	Yes

How is Form W9 filed? 

The short answer is it’s not. Form W9 is not filed with the IRS at all; instead, the form is submitted by the contractor to the US payer or withholding agent, who then holds it and uses it to: 

• Determine the appropriate withholding for the payee
• Reserve it in the event of an audit

In addition, the payer should make a copy of the completed form W-9 and deliver it to the payee, ensuring that they also have a copy for their records. 

What happens if Form W9 is not issued?

Although employers don’t file a W9, failure to collect a TIN can result in problems for both the payer and the payee in the long run, as it results in an improperly filed 1099 and resulting back taxes, not to mention fees that may apply in specific cases. 

A simple breakdown of these fines/penalties would include: 

W9-related penalties & fees

Party	Failure Type		Penalty Amount
Payee	Fails to furnish TIN when properly requested		$50 per failure
	Provides false information		$500
	Subject to backup withholding		24% of reportable payment
Payer	Fails to include the correct TIN on Form 1099 (information return error)	If corrected within 30 days	$60 per return
		If corrected by August 1st	$120 per return
		After August 1st/ Not filed	$310 per return
		intentional disregard	$630 per return
	Fails to furnish a correct payee statement		Same tiers as above
	Misuses/improperly discloses W-9 data		Varies on disclosed information

Suffice it to say, business owners should make sure to distribute Form W-9 wherever applicable to avoid penalties. Companies seeking to remove a penalty have the option to appeal if they respond within 30 days of receiving the initial notice.

How do companies distribute Form W9? 

Employers wanting to more easily distribute Form W9 to contractors have several options at their disposal, however they vary significantly in terms of cost, effectiveness, and labor intensity, making it hard to determine who each method is best suited for. 

The following table evaluates each according to the aforementioned factors: 

W9 Distribution methods, evaluated

Method	Global Payroll Provider	Tax Filing Software	E-Signature	Manual Distribution
Cost	★★★	★★★★	★★	★
Labor Intensity	★★	★★★	★★★★	★★★★★
Effectiveness	★★★★★	★★★★	★★★	★★
Pros	Automated processes	ERP integrations	Enforces required fields	Budget-friendly
	Additional WFM tools	Centralized tax doc mgmt	Creates an audit trail	Ensures correct form
Cons	Subscription costs	Subscription cost	Heavy fees	Requires manual follow-up
	Potential country support gaps	Possible payee confusion	Longer setup time	Prone to error
Best For	Companies seeking automated processes to grow their workforce consistently	Enterprise-level companies seeking to integrate ERP software	Smaller companies with a dedicated in-house HR team	Minimal operations or companies onboarding for a one-time project

The best option for you? 

If you are still asking, “What is Form W9?” working with an experienced partner may be the best course of action to stay compliant while expanding your workforce. 

Having a global workforce management platform that includes payroll on your side enables you to automate document management and fill out your W-9s properly before any payment takes place. 

Reach out to us to see what Payoneer Workforce Management can offer.

FAQs

1. What is a W9 form used for?

A W-9 form is used by US individuals or businesses to provide their taxpayer identification number (TIN) to another party, usually a company that’s paying them. It allows the payer to correctly report payments to the IRS, often through a 1099-NEC or other tax form.

2. What is the difference between a 1099 and a W9?

A W-9 is a form completed by a contractor or vendor to give their tax details (like name and TIN) to the payer. A 1099 is a form the payer sends to the contractor and the IRS to report how much was paid. In short, the contractor fills out the W-9; the payer issues the 1099.

3. How will a W9 affect the taxes for contractors?

Filling out a W-9 doesn’t directly affect contractor taxes, but it allows the company paying contractors to report the income to the IRS. An independent contractor receives a 1099-NEC showing how much they earned, and they’ll be responsible for reporting that income and paying self-employment taxes on it.