As an organization with employees and independent contractors, handling finances and tax compliance can seem daunting. This is because there are so many different forms required by the IRS, including Form W-4 and W-9. But what are these two forms, and what makes them different from each other? Luckily, they are both simple to understand once you have all the relevant information.

A Form W-4 is for permanent employees, whereas a W-9 is for an individual or entity paid outside of the organization. Below is everything you need to know about the two forms, such as what they are, who needs to file them, their main differences, and what happens when you don’t file each. 

What is Form W-4?

The Form W-4, also known as the Employee’s Withholding Certificate, is a document that allows an organization’s employees to select how much of their income will be withheld for federal tax purposes. Once an employee has filled out a W-4, the company they work for will know how much of their pay they must withhold each month. 

The amount an employee can withhold is determined by their pay and withholding allowances, which depend on filing status, dependents, and tax credits. 

Who should file Form W-4?

Employees fill out form W-4 so they may select how much federal tax to subtract from their income. An employer is not required to file a W-4, however the IRS may require their review at any time. Employees must fill out a W-4 at the start of a new job or when they experience circumstance changes. 

What is Form W-9?

The Form W-9, also known as the Request for Taxpayer Identification Number (TIN) and Certification, allows organizations to request critical information from independent contractors, such as the TIN. These include workers who aren’t classed as ‘permanent employees’ and work outside the organization. It ensures all information complies with the IRS and the correct taxes are paid.

Once submitted, a Form W-9 can only be amended by the payee, so organizations should submit a new one annually or each time a contractor provides new information.  

To ensure the accuracy of the TIN provided by independent contractors, using EINsearch’s TIN Validation tool can help verify the information against IRS records. This simple step ensures you stay compliant with IRS regulations and avoid reporting errors.

Who should file Form W-9?

An organization may request an independent contractor to fill out their own W-9 Form or ask for the relevant information to complete it themselves. Once filled out, it is the organization’s responsibility to use it to ensure their 1099 form is accurately filled out. A strong recommendation is to request and update W-9 from your payees to ensure all information is correct and up-to-date. 

To avoid mistakes when filing 1099s, it’s a good practice to perform a TIN verification using EINsearch’s platform. This will confirm that the contractor’s TIN matches IRS records, helping you maintain compliance and avoid incurring IRS B Notices later on.

Form W-4 vs. Form W-9: What are the key differences?

When looking at both forms, there are three key differences that stand out:

Filing need

Unlike a Form W-9, a Form W-4 is mandatory for all employees. Organizations must receive a brand new W-4 for every employee that starts working for them. On the other hand, Form W-9 is only required for companies that pay independent contractors more than $600 in any given tax year. 

Information required

The type of information required to fill out each form is also different. Form W-4 requires details about an employee’s personal and financial situation. This might be information such as their marital status, how many dependents they have, and other taxable income sources of the employee. Form W-9 only requires basic information.

Purpose

Each of these forms also has its own unique purpose, which is arguably the main difference between them. Form W-4 is issued to employees so organizations know how much federal income tax to withhold from their income. Form W-9, on the other hand, helps organizations report accurate information to the IRS about independent contractors’ payments to remain compliant and avoid penalties. 

For companies working with independent contractors, conducting a real-time TIN Match against the IRS database using EINsearch’s platform is crucial. This ensures that the TIN on file for each contractor is valid, helping avoid penalties due to incorrect information. 

What if I miss filing Form W-4?

Since Form W-4 is mandatory, every organization must receive it as quickly as possible after a new employee starts with them. It does not need to be filed to the IRS. Instead, companies use the W-4 to register the employees’ withholding wishes into a payroll system. Due to this, there are no penalties since the companies are not required to file them. 

What if I miss filing Form W-9?

While a Form W-9 is only mandatory for individual contractors who earn over $600 in a taxable year, it can come with steep penalties if the incorrect information is used from the W-9 to file the Form 1099. 

Not only will an organization not be able to pay an independent contractor without this form, but they may have to fork out a lot of money, too, if the 1099 is incorrect. For companies that rely solely on outside workers, the organization’s finances might take a serious hit for each fine imposed, so it is incredibly important to file on time. 

To prevent any issues, use EINsearch’s TIN Validation tool to confirm the TINs of your contractors are accurate and up to date before submission. This step minimizes the risk of fines from the IRS. If you are missing a vendor EIN, you can also conduct a search within EINsearch’s database of over 20 million records.

How EINsearch can help with tax compliance

Both Form W-4 and Form W-9 are important for organization workers, whether they are permanent employees or independent contractors. 

To remain tax compliant within an organization, EINsearch is here to help. Our online tool for TIN matching helps businesses validate employee and contractor information, ensuring the IRS is happy and doesn’t implement penalties for incorrect details. Stay on top of your forms and use the EINsearch TIN matching service today!