The Differences between W-2 and W-9 and When To Use Them

Maintaining accurate and organized records can be compared to keeping a well-organized desk or filing cabinet—neat and accessible. Just as having all your paperwork ready makes it easier for you to find what you need quickly, maintaining thorough records helps streamline the tax filing process. These documents should include receipts, invoices, bank statements, and any other evidence of income or deductions. By keeping these organized, you not only make the annual reporting smoother but also ensure that you have everything at hand in case of an audit. When it comes to annual reporting for tax purposes, think of it like preparing an annual health checkup for your finances.

As a business owner, you have to know who each form is for and when to use them. In this guide, we’ll explain the difference between W-9 vs. W-2 forms, who uses each and when to file them. When it comes to tax forms, the W-2 and W-9 are two commonly used documents in the United States. While both forms are related to taxes, they serve different purposes and are used in different situations. In this article, we will compare the attributes of the W-2 form and the W-9 form, highlighting their differences and similarities. A company will use the name (or business name), address, and TIN (or more commonly, social security number (SSN)) that a contractor provides on the W9 to complete the required information return.

This form shows how much you were paid during the year but doesn’t include any tax withholding since that’s your job. If you’re an employee, you’ll get a W-2 from your boss at the end of the year. It shows how much money you made and how much was taken out for taxes. Further, if an individual or entity is exempt from the Foreign Account Tax Compliance Act (FATCA) reporting requirements, they can declare this and provide the appropriate exemption code on the form. A W-2 form, officially named a “Wage and Tax Statement,” is an annual form you receive as an employee that reports compensation you’ve earned from your employer. Employees receive a W-2 form from their employer by January 31 of each year for the previous tax year.

Understanding tax forms can be as challenging as deciphering a secret message. They might look similar, but they come with slightly different purposes. ⦿ W-2 employees receive regular paychecks with taxes already taken out.

By preparing your W-4 form appropriately for your unique tax situation, you can avoid any unpleasant surprises at tax time and allow your employer to withhold income taxes in the correct amount. If you work as an independent contractor, you’ll need to monitor the amount you make. Use the Estimated Tax Work Sheet Included with Form 1040-ES to determine if you should be setting payments aside and, if so, how much.

His work has appeared in major publications like Kiplinger, MarketWatch, MSN, TurboTax, Nasdaq, Yahoo! Finance, The Globe and Mail, and CNBC’s Acorns. In addition to health insurance, you can also claim any medical costs and charitable contributions on the personal side. Be sure to claim every business expense that you are entitled to take. If you’re unsure, consult the IRS guidelines or a tax professional to avoid misclassification issues.

What Is IRS Form W-9, Request for Taxpayer Identification Number and Certification?

You should have each U.S.-based contractor fill out a W-9 as part of their onboarding paperwork, generally due to your accounting department before they sign a contract and begin work with the company. Keep it for your records so you have the information you need to file a 1099 for the contractor in January for tax season. You have to fill out, file and distribute a W-2 form for every employee you paid at least $600 in a given tax year, even if they no longer work for your business at the time you’re filing.

IRS Payment

Employers are required to issue a W-2 form to every employee they pay ​$600​ or more during a tax year. You should receive a W-2 from your employer early in the tax season. Your employer will send a copy to you, the Social Security Administration and to the federal and state authorities processing income tax returns. A W-9 doesn’t include any tax withholding information because independent contractors are responsible for filing and paying their taxes unless they are subject to backup withholding. In such cases, they must indicate this on their W-9 to inform the business receiving the information that they need to withhold 24% income tax from any invoices. It doesn’t contain any information for a contractor that’s useful at tax time.

How to Calculate Tax on a W-9

• Just because someone is able to expense and get reimbursed for outlays does not mean they are an employee but there are nuances by industry.
• Whether it’s communicating complicated topics in a clear way or helping readers connect with another person or place from the comfort of their couch.
• When employers label workers as independent contractors rather than temporary employees, they don’t offer the same benefits or pay unemployment and additional taxes for their workers.
• A W9 or 1099 contractor, on the other hand, is available to immediately accomplish the tasks at hand.

Typically, they’re due by Jan. 31 each year for the previous tax year, but your deadline might vary if you elected a different tax year with the IRS. You have to both file a copy with the SSA and the state (if required) and send a copy to the employee by the deadline. If a business pays someone considered a non-employee more than $600 in a year for their service, it must file what’s called an information return. The accuracy of this information return is verified by the data the contractor directly gives you when filling out a W9 form.

This form asks for basic contact information, including your Social Security number, so that the client will have the information necessary to report your income. The W-9 form is used by independent contractors to provide their tax information to their clients, so that accurate reporting of payments made can be done at the end of the tax year. Overall, understanding the distinction between the W2 and W9 forms is crucial for employers and workers. By using the appropriate form for each type of worker, businesses can accurately report earnings and taxes, and workers can ensure their tax information is properly documented. Employers must issue a W-2 form to each employee who earned at least $600 during the tax year.

When filling out your W-9, you’ll need to include the appropriate exempt payee code if you’re not subject to backup withholding or the FATCA reporting requirements. Generally speaking, these items don’t apply to most independent contractors or freelancers. If you’re an independent contractor, the good news is that you can deduct some expenses to help reduce the amount of income subject to income taxes.

What is Form W2?

• Instead, businesses use the information provided on the W-9 to prepare a Form 1099-NEC (Nonemployee Compensation) at the end of the year, showing how much they paid the contractor.
• Imagine self-employment as a solo journey; you’re the captain navigating your ship through tax regulations.
• You might be wondering when to expect your W-2 and it will vary across employers, but they are required to send you your W-2 by January 31st per the IRS.
• For the 2020 tax year, you’ll only pay the Social Security tax on the first ​$137,700​ of your yearly earnings.

This can lead to confusion around the difference between W-2 and W-9. The IRS Form W-9 is a request for taxpayer identification number (TIN) and certification. An independent contractor fills out this form when you hire them to work for your business, so you have the tax information you need to record how much you paid them at the end of the tax year. Some temporary workers can still be classified as W2 contractor (versus W9 contractors).

An employer pays half of this (7.65%) and then withholds the other half from W2 employee paychecks. On the other hand, W9/1099 contractors pay the entire 15.3% tax themselves on the money they earn. When a freelancer signs up with the third-party agency, they will fill out Form W4. With this document, the temp agency will determine how much to withhold from their paycheck. When the tax year ends, it is the agency that is responsible for mailing out a W2, not the business using the contracted worker. This is part of the reason why a smaller business might choose to work with a temp agency.

➡ For employees, your employer sends your W-2 to both you and the IRS. You’ll use these details to figure out if you owe the government money or if you’re due a refund. It’s important to keep your W-2 in a safe spot, as you might need it for things like applying for loans or other financial services. If you’re conducting a Form W2 vs. W4 vs. W9 comparison, the high-level highlights of each form are provided below. Your employer must also send a copy of your W-2 form to the Social Security Administration, and perhaps to state or local tax agencies where you live.

When it comes to hiring people, there is no shortage of official forms you have to fill out. Two of these are W-9s and W-2s, and there is often a lot of confusion surrounding the differences between them. However, what is the difference between w2 and w9 it is recommended to request a W9 from every contractor you work with, and make sure the information is correct by running a Taxpayer Identification Number verification.

Employers can send the forms physically, digitally, or both to comply with the IRS requirements. For the 2020 tax year, you’ll only pay the Social Security tax on the first ​$137,700​ of your yearly earnings. But you’ll pay the ​2.9​ percent Medicare tax on the full amount, no matter how much you make. Technically, if someone doesn’t pay you ​$600​ or more, no W-9 is required. However, your client may have no idea how much he’ll pay you the first time he hires you for a job.