Independent contractors are more cost-effective and efficient than hiring permanent staff for small businesses. This can be a good option for seasonal or short-term projects or when additional skills and expertise are required.
If you are hiring contract employees, all those who earn more than $600 must fill out and submit a Form W-9. We'll explain the tax form, who needs to fill it out, and how eSignly can simplify the process.
What is a W-9 Form?
The IRS Form W9, or the Request for Taxpayer ID Number and Certification, is for independent contractors (freelancers, self-employed workers, consultants) and limited liability companies (LLCs).
For hiring purposes, employers use the W9 form to confirm a person's name and address. Individuals who are US citizens or resident aliens will need to be confirmed by TIN/SSN.
Employers must withhold a portion of the income taxes paid by full-time employees under the law. Independent contractors and self-employed workers are exempted from this obligation.
Independent contractors and self-employed workers are required to complete the W9 form to fulfill their tax withholding obligations.
If they need to pay an independent contractor more than $600 per year, employers use the W9 form. However, if the compensation is less than the threshold, the W9 form can still be issued.
In certain situations, the W-9 Form may be required to be completed by an individual.
- real estate deals;
- mortgage interest payment;
- student loan interest payment;
- Cancellation of debt
- Earning interest from a bank
What is the difference between W2 and W4 forms?
Many taxpayers don't realize the difference between W2, W4, and W9. It is important to clarify the purpose of each form.
- Form or Wage Statements are forms the IRS requires employers to send to employees and the IRS at the close of each year. The IRS requires the W2 form, which is an annual statement of employees' wages and deducted taxes from their paychecks.
- Form or Employer's Withholding Certificates are forms that employees fill out to give direct employers information about their tax situation. Based on marital status, dependents, and other factors, the W4 form shows how much tax an employer must deduct from an employees paycheck.
Who Needs to Fill Out a W-9?
Contractors, consultants, and freelancers earning $600 or more per year should be requested by business owners to complete W-9 forms.
Sales professionals who paid more than $5,000 last year will also need a W-9.
W-9s may be required for self-employed contractors and anyone reporting income unrelated to a full-time job. These include stock sales, real estate transactions, and canceled debt.
Full-time contractors typically complete a W-4 Form. They don't need to complete a form called a W-9.
To generate 1099 in tax season, you will need the W-9.
Information Required on a W-9
Contractors will need to provide basic information, such as their name, address, and business name (if applicable) and their taxpayer identification number or social security number.
You will also need to provide your federal tax classification (C-corporation or S-corporation), LLC, individual, and other information.
Some entities may be eligible to file tax exemption claims. To verify its accuracy, the form must be signed and dated before it can be submitted.
Make the W-9 Process Easier with a Template
The eSignly W-9 template makes filling out your tax documents easy via PowerForms. This template uses special formula logic to verify that employee identification and social security numbers are correctly entered.
Employees can complete the form more quickly using the shareable template. HR professionals can also upload the templates faster to their systems.
Instead of task workers doing complicated calculations, the pre-built eSignly templates does quick math to eliminate errors.
It eliminates the need for paper and helps employees to be clear about what fields they must fill out. It also ensures that highly sensitive personal data is protected and secured.
HR professionals can digitize the process to avoid the hassle of getting wet signatures. They also don't have to deal with the back-and-forth required when vital data isn't read due to handwriting errors.
Are you ready to get started? Customers who are already eSignature customers have free access to the W-9 template.
Non-eSignly customers will need to sign up for eSignature to gain access.
Which Laws Govern the use of eSignatures for Tax Services in the US?
The primary statutory basis of federal tax law in the United States is the Internal Revenue Code (IRC), formerly known as the Internal Revenue Code of 1996.
It codifies multiple federal tax laws, including income, payroll, estate, alcohol, tobacco, and employment taxes, along with procedures and administration.
The Internal Revenue Service Restructuring and Reform Act 1998, also known as the Taxpayers Bill of Rights III, improved the IRS' organizational culture and increased taxpayer rights and protections.
The RRA includes provisions that apply to individuals and businesses, as well as the structure and operation of the IRS and taxpayer rights.
Does the IRS allow the use of eSignatures?
Section 6061 of the Internal Revenue Code allows electronic signatures for tax returns and other documents. Subparagraph 3 states that electronic signatures of taxpayers will be accepted for "any request to disclose a taxpayers return or return information, or any power or attorney (POA), granted by a taxpayer a tax practitioner." Thus, electronic signatures can be legally valid for authorizations to disclosure to tax practitioners.
The RRA includes numerous amendments to 1986's Internal Revenue Code. The Act covers the electronic filing of tax returns verified using eSignatures.
Title II of the Act specifically states that:
- Electronic filing is preferred;
- By 2007, electronic filing of 80% of tax returns is expected to be the norm
- The IRS should encourage electronic filing by collaborating with the private sector.
Title II of Act, Sec. 2003, covers electronic signatures, internet access of tax forms, disclosure, and account information.
Which Tax Forms Can Be Submitted with Electronic Signatures in the US?
The temporary relaxation of the rules for digital signatures and eSignatures on specific tax forms was due to the COVID-19 pandemic.
With the Memorandum for All Services and Enforcement employees dated August 28, 2020, the IRS temporarily allowed taxpayers and their representatives to eSign these forms that required a handwritten signature.
- Formula 3115, Request for Changes in Accounting Method
- Form 8832: Entity Classification Wahl;
- Formula 8802, Application to US Residence Certification
- Form 1066, US Income Tax Return for Real Estate Mortgage Investment
- Conduit;
- Form 1120-RIC, US Revenue Tax Return for Regulated Investor Companies
- Form 1120-C for US Income Tax Return for Cooperative Associations
- Form 1120-REIT, US Income Tax Return for Real Estate Investment Trusts;
- Form 1120-L US Life Insurance Company Income Tax Return
- US Property and Casualty Insurance Company Income Tax Return Form 1120-PC
- For IRS e-file Signature Authorization forms, please use Form 8453, Form 8878, and Form 879 series.
If you mail the above forms between August 28, 2020, and December 31, 2020, you can submit them with eSignatures.
In September, six additional forms were added to the IRS's electronic submission list.
- Form 706, US Estate (and Generation-Skipping Transfer) Tax Return;
- Form 706-NA, US Estate (and Generation-Skipping Transfer) Tax Return;
- U.S. Form 709 Form 709, U.S.
- Form 1120-ND, Return for Nuclear Decommissioning Funds & Certain Related Persons
- Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt Of Certain Foreign Gifts
- Form 3520-A Annual Information Return of Foreign Trust to a US Owner.
The federal agency continues to examine the submission process to reduce tax burdens. It is also committed to protecting identity theft and security.
What is the Purpose of an IRS Form W9?
An information return, Form 1099-MISC, must be filed to the IRS if an employer makes payments to a contractor exceeding $600 in a tax year.
It includes the income information from the W9 form. It includes income received as part of a contract or real estate operations.
Employers are legally bound to give certain personal information to employees. Their privacy is protected, however.
Employers who disclose employee personal information in an unapproved manner could face criminal and civil prosecution.
Information required for Form W9
A W9 Requires
- The business and individual names of independent contractors.
- Type of business entity: sole proprietorship, partnership or C corporation, S corp, trust or estate, LLC, etc.
- Social security or tax identification number for sole proprietors without a tax ID.
To fill out the W9 form, the individual must prove that they are not subject to any backup withholding. Most taxpayers don't care about this, but it could be a concern for some.
If it does, the company that hired the independent contractor must deduct income tax at 24% from the contractor's pay and submit it to IRS.
The W9 form requires either a TIN/SSN or both. Both the person filling it and the company that receives it must protect it from identity theft after transmission.
Is a W9 form required when not needed?
Get a W9 from an Unknown Third Party
Independent contractors are not required to complete W9s if they receive them from a client. Identity theft could result from disclosing a Social Security Number (SSN), or other personal information, to a stranger.
Scammers may send W9 forms to victims to get their SSNs.
You can ask for more information on the tax forms they will send you if you are unsure whether you should fill out the W9 form sent by a third party.
To get more information, consult a tax professional. A third party can only request a W9 form if they send another IRS form.
If your employer Requests
We've established that W4 is the right form for employers. If your employer requires that you fill out a W9, what happens? This could indicate that you were hired as an independent contractor, not an employee.
If that is the case, clarify your employment status to ensure you are not on a tax payment string to the IRS.
W9 is a simple legal form that can be used in the United States and is unlike other forms. You can download a blank W9 form online or from an authorized provider.
Fill out the W9 form with all the required information.
-
Line 1 Name
Your full legal name must match the name on your income tax return.
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Line 2 - Business Name
If you have a business or disregarded entity name different from your legal name, please fill out this field. You can also leave it blank.
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Line 3: Federal Tax Classification
Select the appropriate box to indicate your tax status under the IRS classification. Select one of these six options:
- Sole proprietorship or LLC with individual members
- C corporation
- S Corporation
- Partnership
- True/estate
- Limited liability company
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Line 4 - Exemptions
Please fill out this section if you are exempted from FATCA reporting and backup withholding. Enter the tax code to explain your exemption.
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Lines 5 & 6: Address
Your address is required so your employer can mail your returns. In line 5, enter your number, street, and apartment/suite numbers.
In line six, enter your city, state, and ZIP code.
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Line 7 - Account Numbers
You can fill this in or leave it blank. It's completely optional. List all account numbers that you have for your employer.
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Part 1: Taxpayer Identification Number (TIN)
- Single-member LLCs and individuals must provide their Social Security Numbers (SSNs) instead of TIN.
- Partnerships and corporations must provide the Employer Identification Number (EIN).
- A sole proprietor can provide their SSN as well as EIN.
-
Part 2: Certification
This section allows you to sign the form and add a date. Verify that the information is correct before you sign.
Is it possible to eSign form W9 with the IRS?
The IRS did not have a set of rules that would allow it to recognize eSignatures before the global pandemic. Each form is unique, and tax professionals must keep up with the constantly changing rules.
The IRS supports electronic signatures and electronic documentation. Practically all forms have an option for good electronic signing.
- According to IRS rules, filers can electronically sign and submit W9-2022 form and W4 forms.
- A signature is not required for the 1096/1099 electronic filing process. Certain companies might require that you prove the accuracy and completeness of the information in the 1099 form.
- To receive the W2 and 1099 forms electronically, recipients must agree. Although the procedure doesn't require an electronic signature, consent must be recorded.
For W9 forms to be valid, they must be submitted with an electronic signature.
- Assure consistency in information. The information you send must correspond to the IRS information.
- All user accesses that lead to sensitive information submission must be documented.
- Accessing the system to eSign or submit the W9 form has to be done by the person identified on the form or an authorized third party.
- The taxpayer must provide an electronic signature as the final entry to authenticate or verify the W9 submission.
- Perjury penalties must be applied to the eSignature. Statements must be written in the same language that the W9 paper is in.
How do Electronic Signatures Work?
An eSignature is often a visual representation or handwritten signature. The image of your signature will be added to the PDF's top layer when you eSign it.
With the appropriate eSignature apps such as eSignly or DocuSign, w9 forms can be signed easily.
How to Create an Electronic Signature?
- Draw your signature on a tablet/mobile device's screen
- Attach a photo of your signature from hardcopy to a digital document.
- In the field of an eSignature App, type your full name.
Individuals or companies can request an electronic signature when sending PDFs to clients, business partners, and contractors.
Electronic signatures signify that the sender and recipient both intend to sign the document. They also agree to do business electronically.
Electronic signatures are not just for business. They are used in various document-related transactions across many spheres of human life.
The uses of eSignature include medical history forms, loan agreements, teacher reports, and policy declaration forms.
Are Electronic Signatures Secure?
To eSign PDFs or other documents, signers must either upload an image from their device or draw it on a trackpad.
Users believe eSignatures don't offer enough security because it is so easy. It all depends on how easy the eSignature app is to use and what security requirements are required by a specific business.
Multiple security risks are associated with eSigning, including malware, hacking attacks, and identity theft. The IRS electronic signature (eSignature), Program sets out security standards for eSigning.
Secure Access e-Authentication offers multiple levels of online security. This is outlined in Section 10.10.1.1.5 (12-03-2019). Each transaction's risk is assessed using a range of levels of assurance, ranging from 1-4.
Based on the level of assurance, the type of identity proofing that is required varies.
- A (Level 1) indicates low or no confidence in the validity of identity. Identity proofing is not necessary since taxpayer information is not shared.
- B (Level 2) denotes some trust in the asserted identity. It is necessary to prove identity by only one factor.
- Level 3 denotes high confidence regarding the identity's validity. This level can be verified using several methods:
Multi-factor Identity Proofing
- A request for authentication "Something you know" input
- A request for authentication "Something you have" input
- D (Level 4) denotes strong confidence in the identity's validity. This level can be verified using several methods:
- In-person identity verification
- Multi-factor authentication request for "Something you know" input
- Multi-factor authentication request "Something that you have" input.
What makes an Electronic Signature Legally Valid?
The eSigning process is a one-factor authorization. A signer's identity must be verified, and there must be proof that they have signed.
Section 101 of the ESIGN Act stipulates that eSignatures are legal and can be enforced.
- All signatories must consent to the use of an electronic signature.
- You must record the process of creating an electronic signature using your software.
- Electronic signature records must be kept and made available for exact reproduction.
The inadmissibility of eSigned evidence as court evidence may be caused by insufficient audit logs and weaknesses in the authentication.
Any eSignature solution must comply with a wider range of requirements.
- Unique eSignature that is unique to each user. Signers create a unique eSignature when they send electronic documents for signature.
- There are many options for signer authentication. To verify a signer's identity, a range of authentication methods can be used (an email address and IP address as well as time of document access). It should be possible to add two-factor authentication for any document.
- Cloud document storage. Secure cloud storage is required for electronic documents. Anyone involved in the signing process should be able to view and download an electronic copy of the document.
- An in-depth audit log. All parties to the signing process should be able to access the detailed document history via the eSignature application. An audit log should include the history of uploading, adding elements, and viewing the document.
- Compliance with security standards. The electronic signature solution must comply with the IRS security standards (PCI DSS 11.2 and guarantee the confidentiality of sensitive information.
How to eSign W9 in eSignly?
Individuals, small and medium-sized companies, and enterprises use eSignature apps to sign tax forms electronically.
With eSignly, users can electronically sign a W9 form 2022 in just two clicks. Then, they can prepare it for electronic filing with the IRS from their accounts.
Use the instructions below to eSign Form W9 using eSignly
- You can download a PDF version of the IRS W9 form from their website. You can also download a blank W9 form in PDF format from the IRS website. eSignly supports all in-demand formats (PDF, DOCX, and PPTX) and image file formats (JPG/JPEG and PNG).
- Log in to your eSignly Account. You can choose an existing template or document from the eSignly Documents Folder; import a file saved on your device to create a new template/document.
- Click on the button "Upload Documents" in the upper-left corner. To upload the W9 PDF from your device to eSignly, select it. Click on the link to continue after you have uploaded the form.
- To create a fillable field, go to Edit & Sign on the right-hand side of your screen. This step can be repeated for fillable text fields on lines 1, 2, 5, 6, 7, and Part I Taxpayer ID Number (TIN). Complete the required information.
- Line 3: Create a checkbox, and then tick the box to indicate the tax classification. Click on Checkbox Field in the Tools section. Click on the box to create a checkbox.
- The default setting is to leave the checkbox unchecked. Click on the CHECKBOX tab to the right of the screen. Select Checked from the drop-down menu for Prefilled states. Click OK at the bottom to save your changes.
- Use your eSignature in the Part II Certification section to verify your information. Go to Edit & Sign and click on My Signature.
- To activate the signature field, click on it and sign the document. A popup window will appear where you can select signing option for w9 form digital signature.
Choose one of these three options:
- Create a new signature by entering your full name.
- You can change the style and look of your electronic signature using the Change Style option. Next, select a different typeface to use for your electronic signature.
- Draw Your Signature. Use a trackpad or mouse to draw a signature in the blank field.
- Upload your signature Drag and drop an image of your signature to your device in JPG or GIF format. The image must not exceed 4Mb.
If you have several signatures created for the event, choose one to be your default. Select the signature you love most from the Select Your Signature popup and click "Set as My Default Signature."
- Click the Sign button if everything is fine. To return to the dashboard, click Save and Close.
- You can access the completed form via the eSignly Homepage if you need to email your eSigned Form 9 to the IRS. To access the drop-down menu, click on the "More" link. To download the completed form, click on Download.
eSignly's capabilities go beyond the creation of electronic signatures or editing PDFs. You can create document templates and invite others to eSign the documents.
You can also view History with an audit trail and download history files. Users can also merge, archive, and move documents, rename them, and so on.
The Key Takeaway
eSignly uses multifactor authentication to verify each signer's identity separately. eSignly requires login and password along with the full name, email address, voicemail verification, and fingerprint login verification.
The powerful eSignature app conforms to IRS regulations, so you can rest assured that only the intended signer is signing.
After a tax form has been eSigned using eSignly, it is protected against further tampering. eSignly keeps electronic documents with an index.
For archiving or electronic records, users can easily create document copies.
