Tax-Related Forms for Independent Contractors – 2023 Updates

Businesses often hire freelance workers, gig workers, independent contractors and others to provide services. Payment issued to these non-employees must be reported to the IRS on Form 1099-NEC. In this blog, we highlight the Form W-9 and Form 1099-NEC.

Form W-9

IRS Form W-9, Request for TIN and Certification, is completed by the independent contractor to provide the independent contractor’s legal name, address, Employer Identification Number (EIN) and taxpayer identification number (TIN) or Social Security number (SSN) to an individual, business or financial institution.

The purpose of Form W-9 is to give a business (the payor) the information it needs to report the contractor’s earnings during the tax year. Businesses should request new vendors to complete the W-9 form at the beginning of the supplier onboarding process. Ideally, a business will have the vendor’s completed W-9 form before they remit the first payment to the vendor, which saves time and effort at the end of the year when preparing to file the 1099s.

When a business cannot obtain or verify a vendor’s EIN, they are not prohibited from doing business with that vendor by any tax law. However, the business (the payor) is required to start withholding federal taxes to ensure all appropriate taxes are paid for work. This is referred to as “backup withholding.” As the payor, you may be required to withhold 24% of payments that are made to this individual for the IRS. This backup withholding will continue until the correct TIN is provided.

Form 1099-NEC

Form 1099-NEC, Nonemployee Compensation, is used to report any compensation given to non-employees by a company for business purposes totaling $600 or more in a calendar year, including:

  • Services performed by someone who is not your employee (independent contractors, gig workers, freelancers, professional service fees to attorneys, accountants, architects, etc.)
  • Payments for services, including payment for parts or materials used to perform the services if they were incidental to the service
  • Fees paid by one professional to another, such as fee-splitting
  • Director’s fees
  • Commissions paid to non-employee salespeople
  • Payments to anyone from whom you withheld federal income tax under backup withholding rules for any amount, even if it’s less than $600

Form 1099-NEC for the previous calendar year must be sent to the payee(s) and filed with the IRS by Jan. 31. The IRS will compare the information you provide with the contractor’s tax return, so it’s crucial that you report payments correctly.

Additionally, the IRS recently announced that employers filing 10 or more returns on or after Jan. 1, 2024, must submit returns electronically instead of via paper filings. This newly reduced threshold of 10 is an aggregate of all return forms to be submitted by your organization for tax year 2023, including:

  • Form 1099-NEC
  • Form W-2
  • Form 1042-S
  • Form 1095
  • Form 1097

It may seem like staying up to date on frequent IRS tax announcements is a constant uphill battle. For personalized expertise and guidance on Form W-9, Form 1099 and other tax updates, contact the experts at SST Accountants & Consultants.