Can you tell the difference between Form W-9 vs W-4 as a new employer or employee in the United States? While they’re integral to the U.S. tax system and share similar names, they cater to different aspects of financial life and serve distinct purposes.
Are you an employer seeking clarity on your responsibilities or a taxpayer looking to understand your obligations by learning the difference between Form W-9 vs W-4? This article will provide clarity on the significance of these documents. Let’s get started.
What is Form W-9?
Form W-9, or the Request for Taxpayer Identification Number and Certification, is a document businesses or individuals provide for tax purposes in the United States.
Now, you can answer the question, “What is a W-9?” Keep in mind that it’s usually submitted to entities making certain payments, such as interest or dividends.
Form W-9 is the form to complete if you’re registering a company as a freelancer or doing contract work.
What is Form W-4?
Form W-4 is officially known as the Employee’s Withholding Certificate. It’s a document employers and employees use to withhold federal income tax in the United States.
Furthermore, Form W-4 ensures hiring managers deduct the right amount of income tax on employees’ paychecks while considering dependents, marital status, and other tax-related considerations.
This IRS tax form is a document employees should complete before resuming employment at a company. It informs the employer about your tax obligations so they know the deductible amount from your wages throughout the year.
Form W-9 vs W-4: When to Complete?
After defining Form W-9 vs W-4 and exploring the differences, let’s discuss when to complete these documents.
When to Complete Form W-9
Businesses and individuals complete Form W-9 after receiving a request from another entity seeking to make certain payments to them. Everyday situations include the following:
- Independent Contractor Work
Independent contractors and self-employed individuals must complete a Form W-9 at the request of their clients. It’s usually common if the payment is around $600 and above during the tax year, as it’s helpful when reporting to the IRS using Form 1099-NEC.
- Interest and Dividends
Financial institutions and banks may request a Form W-9 from any business or individual earning dividends or interest. It ensures they have the necessary information to report taxes to federal authorities.
- Rental Income
Experienced property owners or managers know the difference between W-4 and W-9 and often ask tenants to provide a Form W-9. It allows them to report rental income to the Internal Revenue Service.
- Royalties and Payments
If you receive licensing fees, royalty payments, or other incomes from creative works and intellectual properties, the firm making these payments might request a Form W-9.
- Lottery and Gambling Winnings
The company remitting payments for lottery winnings might request a Form W-9 for tax reporting purposes. So, you might fill out these documents to win a substantial amount through casinos.
When to Complete Form W-4
Employees must fill out a Form W-4 when they start a new job. You should complete this document as part of the onboarding process to inform employers how much federal income tax to withhold from your wages. Other everyday situations include:
- Experiencing Marital Status Change
Update your Form W-4 to reflect your new status if you get married or divorced. It should adjust your withholding allowances accordingly.
- Adding Dependents
You can increase withholding allowances to reduce the tax removal from your wages if you become eligible to claim someone as a dependent or have a child.
- Changes in Financial Situation
Significant income or financial situation changes may warrant adjusting your document while working for an employer, unlike independent contractor W-4. It ensures that you’re withholding the correct amount of federal income tax.
Form W-9 vs W-4: Key Points to Understand
Form W-9 and W-4 are tax-related documents that serve different purposes. Below are their key points to understand:
- A Form W-9 primary purpose is to collect the payee’s relevant information for tax reporting, including taxpayer identification number (TIN).
- Form W-9’s most vital information is the payee’s TIN, which is usually an Employer Identification Number (EIN) for businesses and an Individual Taxpayer Identification Number (ITIN) for individuals.
- The payee certifies that the provided taxpayer identification number is accurate by signing Form W-9.
- The firm receiving the Form W-9 reports payments with the information to the Internal Revenue Service to ensure compliance with tax reporting.
- Businesses, clients, and financial institutions request a Form W-9 to report payments to federal authorities, especially when hiring independent contractors.
- Form W-9 has no expiration date, but the Internal Revenue Service can update it. It’s advisable to use the most current version.
- Form W-4 begins with basic personal information, such as the employee’s name, filing status, Social Security Number (SSN), and address.
- You can indicate the need for additional withholding to cover total tax liabilities if your spouse also works or holds multiple jobs.
- Employees can claim allowances for themselves and dependents to reduce the amount of tax withheld from their paychecks.
- Employees can use Form W-4 to claim exemption from withholding if they expect no federal income tax liability for the year.
- The Internal Revenue Service may periodically update Form W-4 to reflect tax law changes. Employees should review and update this document if their financial or personal situation changes.
- The IRS provides an online calculator for employees to fill out Form W-4 accurately.
Do 1099 employees fill out a W-4? No, because they’re for employees under a company.
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Form W-9 vs W-4: Key Takeaways
Understanding the distinctions between Form W-9 vs W-4 is vital for businesses and individuals in the United States, as they play distinct roles in financial reporting and taxation.
Companies and entrepreneurs expecting to receive payments from other entities primarily use Form W-9 for tax regulations compliance. Conversely, Form W-4 is an integral part of the employment process, filled out by employees and employers for different purposes.