Tax Day is approaching, and soon it will be time to begin assembling forms. If you haven’t looked at them yet, all those numbers and letters – W-2, W-9, 1099 – can easily overwhelm you.
Some forms are pre-populated and designed for you to pass on to the IRS. They may be headed to your mailbox, or sitting in a “tax documents” portal on a website, awaiting download. In theory, there may be nothing you need to do, apart from delivering them to your tax preparer, if you have one, or documenting appropriate sums on your tax return. Other forms will require action on your part.
Here is a rundown.
What is a W-9 used for?
A W-9 is typically used by businesses to collect a person’s identifying information, including name, address and Social Security number or tax identification number, for income purposes.
A typical reason for filling out a W-9 is that you’re an independent contractor, freelancer, or gig worker. You may also be asked to fill out a W-9 when you open an interest-bearing bank account or another financial account that delivers extra income.
This form doesn’t go to the IRS. But the information you provide on a W-9 will be used to prepare and populate other forms: Read on.
Is a W-9 the same as a 1099?
The main difference between a W-9 and a 1099 is that you fill out a W-9, while the business or entity that is paying you fills out the 1099. In most cases, you should receive any 1099 form by the end of January.
A 1099 form is used to report income that isn’t directly earned through an employer. Because there are many different ways to make money outside of a traditional job, there are several types of 1099 forms.
Common 1099s you might see: 1099-G, 1099-K, 1099-R, 1099-Div
Some of the most common 1099s you may receive:
◾ 1099-G: Details unemployment compensation, as well as any state or local tax refund that’s considered income.
◾ 1099-K: Summarizes any income you earned if you made at least $5,000 on a third-party payment network like Etsy, eBay, or Venmo.
◾ 1099-R: Reports distributions of $10 or more from various types of retirement plans, annuities, pensions, insurance contracts, and similar accounts.
◾ 1099-Div: Used by banks and other financial institutions to report dividends and other distributions to taxpayers and the IRS.
What is a W-4, and what is it for?
A W-4 is a form you’re required to fill out when you work directly for an employer.
It tells your employer how much federal income tax should be withheld from your paycheck, based on factors like whether you’re married and filing a joint return, whether you have dependents to claim, and whether you work multiple jobs.
Typically, you’ll be asked to fill one out when you start a job. But it’s a good idea to revisit the form regularly, especially if you notice that the amount withheld from your paycheck is much different than what you end up owing in taxes at year’s end.
You should also revisit it if your marital status changes, you have or adopt a child or your employment situation changes.
The IRS has a tax withholding estimator tool that can help you decide how to tweak your W-4 entries.
Need help with your business or personal taxes? Contact KM&M
If you need help with your taxes — business or personal — please contact the experts at KM&M. Reach us by phone at 419-756-3211, email to [email protected], or by filling out the contact form on this website here.