1099 vs. W9: Which Is Better for Employers and Why?
Both 1099 and W9 tax forms are used by employers when hiring independent contractors. These forms are often seen as the same thing, but they have differences that are important to understand.
If you are a small business employer looking to hire contractors, you may be wondering what the differences are between 1099 vs. W9. Fortunately, we are going to go over the differences between a 1099 form and a W9 form to help you gain a better understanding. Read on to learn the form differences and tax implications for 1099 vs. W9.
1099 vs. W9: What Are the Differences?
Both forms are used for tax purposes by the IRS. A W9 form is filled out by the independent contractor and given to the employer. A 1099 form is filled out by the employer and outlines the wages paid to the independent contractor. Neither a 1099 nor a W9 form is used for a full-time employee.
Let’s dive deeper into the difference between 1099 and W9.
1099 Forms
A 1099 form from the IRS is a document used to document a taxpayer’s income that is considered non-employment income. Contractors or freelancers to earn more than $600 in non-employment income need to file a 1099-NEC form.
Starting in 2020, businesses are required to file a 1099-NEC form if they paid $600 or more to a non-employee such as a contractor or freelancer. This type of form helps the IRS keep track of income that is not recorded on a person’s salary or wages for income taxes.
A self-employed taxpayer who earned over $600 should receive a 1099 form from who they did work for; however, this is not always the case. Even if the 1099 form isn’t received, a taxpayer is still responsible for paying income taxes for money earned as a contractor that year.
When To Use 1099 Forms: Examples
- You are a small business owner who hired an independent contractor for a one-time job.
- You are a freelancer who completed work for a client.
- You are a consultant hired by a company on a short-term basis.
- You are an artist who sold your work to a collector.
- You are a writer who was paid for an article you wrote.
W9 Forms
A W9 form is filled out by the independent contractor or freelancer when hired by the employer and is for institutional documentation only. It is a basic form that includes information such as social security number, legal name, address, other identifying tax information, and a signature. If the contractor is registered as a business entity, they must include their EIN (employer identification number) instead of their social security number.
If the contractor is likely to earn $600 or more within the year from a particular employer, they should fill out this form. If the contractor fails to fill out a W9 and earns more than $600 in the year, you as the employer, are required by law to withhold 28% of their income for taxes.
When to Use W9 Forms: Examples
- When you are hiring an independent contractor for your business
- When you need to gather information from a freelancer
- When you want to confirm a contractor’s identity
- When you need to get tax information from someone you plan on paying
- If someone you pay is likely to earn $600 or more from you in a year.
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Key Differences Between 1099 and W9 |
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1099 Form |
W9 Form |
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Used to document a taxpayer’s income that is considered non-employment income |
Filled out by the independent contractor or freelancer when hired by the employer and is for institutional documentation only |
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It needs to be filed if the contractor or freelancer earns more than $600 in non-employment income |
It needs to be filled out if the contractor is likely to earn $600 or more from a particular employer |
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Filled out by the employer and outlines the wages paid to the independent contractor |
Filled out by the independent contractor and given to the employer |
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It helps the IRS keep track of income not recorded on a person’s salary or wages for income taxes |
Used to confirm a contractor’s identity and get their tax information |
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Includes information such as social security number, legal name, address, other identifying tax information, and a signature |
Only requires the contractor’s name, address, and Social Security number or EIN |
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Must be filed by January 31st of the following year that payment was made |
No deadline for when the contractor must fill out a W9 |
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Considered an informational return |
Not considered a return at all |
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Copy A of the 1099 form is sent to the contractor; Copy B is sent to the IRS, and the payer keeps Copy C |
There is only one copy of the W9, and it goes to the employer |
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Used to document income for contractors and freelancers |
Used to confirm a contractor’s identity and get their tax information |
Now that you know the difference between a 1099 and W9, let’s look at the tax implications for each.
Tax Implications for 1099 vs. W9
According to the IRS:
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
This is a benefit to hiring independent contractors. If you contract work from an independent source who is not a full-time employee of your business, you generally can avoid paying taxes on their wages.
Note, if you misclassify a worker as an independent contractor with no reasonable basis, you may be held liable by the IRS to employment taxes for the worker.
When To Issue a 1099 Form
So when should you issue a 1099 form as a business owner? The best practice is to prepare a 1099 form for every contractor you hire who has earned more than $600 during the year. Fill it out starting January 1st, and send it to the contractor before the January 31st deadline.
This will help the contractor you hired to file their tax return properly and pay the correct amount in taxes.
When To Issue a W9 Form
For W9 forms, business owners should ask independent contractors to fill out a W9 form the day they are hired. Business owners will need the contractor’s information from the form to fill out a 1099 form later.
Hopefully, this guide has helped you understand the difference between a 1099 vs. a W9 form. If your business is growing and you need funds to reach your full potential, look no further than LendThrive.
Please seek professional guidance from a professional tax advisor, CPA, Human Resources professional, or the SBA government website. These professionals are trained to assist you in filing tax forms and should be utilized if needed.
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