1. Which Tax Forms Must Independent Contractors Fill Out?
2. What Is a Tax Identification Number?
3. Can Independent Contractors Provide Different ID Numbers?
4. When Should Taxes Be Withheld When Dealing with Independent Contractors?

Updated October 13,2020:

Do independent contractors need Tax ID Numbers? Yes, they do. Before an independent contractor can begin work for someone, the contractor must fill out a Form W-9 because their employer is required to file taxes papers on their behalf. A Form W-9 contains a tax ID number — or any pertinent data, like their Social Security number or employer ID number (EIN).

Which Tax Forms Must Independent Contractors Fill Out?

When you hire an independent contractor, you may need to give them a Form W-9 from the IRS and other forms, based on how much you pay them. You will need the information on the form when you file your taxes.

  • You will not have to fill out any tax forms for a contractor if you pay an independent contractor less than $600.
  • The W-9 is required if you pay contractors $600 or more. You present this form to independent contractors, so you can obtain pertinent data, like the contractors' names, mailing addresses, and tax information. This is similar to a Form W-4 your regular employees must fill out because it allows you to obtain a contractor's taxpayer identification number (TIN; also called the taxpayer identification number).
  • When you pay an independent contractor more than $600, you must file a Form 1099-MISC with the IRS along with the W-9. You are also required to give copies of the completed forms to the contractor by January 31 of the following year.
  • Physically send back those copies using Form 1096. In addition, you must send it and any companies of 1099 forms to the Social Security Administration by the end of February.

What Is a Tax Identification Number?

If your independent contractor runs a sole proprietorship, their default tax identification number is their Social Security number. Business owners can obtain a separate tax ID for their business. The TIN serves as a form of identification for a business like an SSN identifies a person.

Business owners must apply for ID numbers in their state, but it may be harder to manage a tax ID number. Unlike a Social Security number, which an individual can use for federal and state documentation, a business owner will have to obtain a tax ID number for each state where they have dealings.

Can Independent Contractors Provide Different ID Numbers?

Yes. For example, most forms of business entities, like partnerships, corporations, and limited liability companies (LLCs) are each assigned a federal employer identification number (EIN). An EIN is a nine-digit number assigned that business owners need in order to file and report on taxes. The IRS, in turn, will use the EIN to identify each business entity. In that way, an EIN also serves the same purpose as an SSN to a person.

Sole proprietors generally do not need an EIN, but they can obtain one if they would like. In most cases, sole proprietors will just use their Social Security numbers.

Again, an independent contractor can provide their Social Security numbers or federal employer ID numbers to clients. Depending on their situation — and especially if they have a lot of clients — they might be loath to give out their Social Security number to so many different people. They might be worried about identity thieves who might take their SSN to file fraudulent tax returns and steal their tax refunds. As such, it might be a good idea for them to obtain an EIN.

In either case, the contractor will need to provide that number to you, lest you withhold 28% of your payments to them.

When Should Taxes Be Withheld When Dealing with Independent Contractors?

Most of the time, you will not have to withhold income taxes, FICA taxes (which pay into Social Security and Medicare), or any other employment taxes. However, you will have to withhold taxes on payments to the independent contractor if:

  • The contractor fails to give you a taxpayer identification number (Social Security Number, Employer ID Number, or Individual Taxpayer ID Number).
  • The IRS tells you that you have given them an incorrect taxpayer ID number for the contractor.
  • The IRS tells you that the contractor has not reported their extra income in prior years.

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