Anyone who earns more than $600 in a calendar year as a contractor instead of as an employee must fill out a W-9 form. Volunteers and those who earn less than $600 are exempt from this requirement. The W-9 provides businesses with the information they need to properly report a contractor's income on a 1099 form.
Independent Contractors and Household Helpers
An independent contractor can work with you for years but not be a formal employee. Many household helpers -- think landscapers, maids, handymen -- and business contractors, such as CPAs and attorneys, fall into this category. The Internal Revenue Service (http://www.irs.gov/publications/p926/ar02.html) cautions that many household helpers -- especially nannies or babysitters -- are actually considered employees and should be taxed as such.
The key difference is that independent contractors control how they perform their duties, while employees have more of their job dictated by the employer. For example, you'll tell your web designer what you would like your website to say, but she will decide when she works on your project and how she approaches it. A nanny, on the other hand, must work set hours and perform her tasks in a manner prescribed by an employer. Consequently, your web designer is considered an independent contractor, but the nanny is considered an employee.
Freelancers perform short-term projects for employers. These are the people who make an event special -- such as photographers, caterers or musicians -- or who help with a special project -- for example, web designers or computer programmers. They aren't people who are needed regularly or for a long-term project. You only need to collect a W-9 for freelancers who are paid at least $600. You'll probably need to ask for one from an event photographer (unless you hired a photographer through an existing company), but you won't need one for the college student you paid $100 to write your press release.
A consultant specializes in answering a specific question or giving someone advice about a situation. This might be a marketing specialist or an interior designer. The consultant might meet with a customer once or several times to share specific knowledge about his area of expertise. A store might bring in a consultant to help increase staff retention or to improve profitability. An individual, on the other hand, might employ a financial consultant to help plan an investment strategy or retirement plan. It's a good idea to get a W-9 from any consultants you hire.
Corporations & LLCs
Whether or not you need to file a 1099 -- and therefore collect a W-9 -- depends on how your contractors file their taxes. According to the IRS, corporate contractors do not need a W-9 because they don't require a 1099. Limited liability company contractors, on the other hand, will need a W-9 if they file as a single entity instead of as a corporation. If you are unsure, ask for a W-9. If your contractor uses her Social Security number or a personal employer identification number, you need to use it to file a 1099. If the LLC has its own EIN, you won't need to use it.
- HAO ZHANG/iStock/Getty Images