W2 Vs W9 Form: Key Differences To Understand As A Worker

A simple difference between W2 vs W9 forms is that Form W-2s are for employees, while Form W-9s are for independent contractors. For both employers and employees, it's important that they understand each form to avoid misclassification. This can help to avoid trigger audits, back taxes, and penalties from the IRS. 

Employers should understand that these forms are essential to workers. Therefore, they should pay close attention to them. Not just the W2 or W9, employers should pay attention to their workers and employee pay stubs. To create these, they can use an online paystub generator.

In this guide, you'll understand "What is the difference between W2 and W9 form?" We'll explain their purposes, classification, and how to file each form when required.

What Is a Form W-2? 

A Form W-2 is called the "Wage and Tax Statement" and is used for regular employment. It is an annual report that employees receive from their employer. It's a type of financial summary. 

The primary purpose of a W-2 is to report employees' total wages, tips, and other compensation for the year. It details all the taxes an employer withheld from your paychecks on your behalf. This includes federal income tax, Social Security and Medicare taxes, and any state and local taxes. A W2 is also useful for employees to file their personal income tax return (Form 1040). They use the amounts listed on W-2 to figure out if they owe more money or are due a refund.

When it comes to handling a W2, employers have a strict legal obligation. They are required to prepare W-2s for employees to whom they paid wages during the tax year. It can also be for any employee they withheld federal taxes from, regardless of the amount paid. They must provide copies to employees and file them with the Social Security Administration (SSA) by January 31st following the calendar year. 

Employees typically receive multiple copies: 

• Copy B: To file with their federal return

• Copy 2: For their state return

• Copy C: For their personal records.

Read more: What Is an Earnings Statement? Definition and Importance.

What Is a Form W-9?

Form W-9 is the "Request for Taxpayer Identification Number and Certification". It is an IRS form used to collect the necessary information from non-employees. This typically may include independent contractors or freelancers, and the details are useful for tax reporting purposes. 

A W-9 collects essential tax information from a payee who is not on payroll. This includes their legal name, address, and most critically, their Taxpayer Identification Number (TIN). For individuals, a TIN is their Social Security Number (SSN). For businesses, it's the Employer Identification Number (EIN). The business requesting the W-9 doesn't file it with the IRS. Instead, they keep it on file for future reference. They use the information on it to accurately prepare a Form 1099-NEC (Non-employee compensation) at the end of the year.

Unlike the W-2, the independent contractor or freelancer fills out their own W-9. A business owner or any person using their services will have to request this form from them. They'd have to do this before making the first payment. This allows the business to report payments correctly if they pay $600 or more to that payee within the year.

The W-9 has a certification section, and when it's signed, the payee certifies that the TIN they provided is correct. This also means that they are not subject to backup withholding. If a payee doesn't provide the correct TIN, the payer is legally required to start backup withholding. They'll deduct 24% from payments and send it directly to the IRS. 

Also check: Pick a pay stub template from our list of options.

Key Differences Between W-2 vs W-9 Categories

Here's an explanation of the W2 W9 differences in terms of their: 

Worker Classification: Difference Between W2 and W9 (Employee vs Independent Contractor)

A W-2 employee operates under a company's direct control. They work for an employer who decides how they work and the entire business structure. While they work for the employer, employees are typically eligible for company benefits. For example, health insurance, retirement plans, and paid time off.

An independent contractor (W-9) simply works for themselves. They decide how they get to work and operate on their own schedule. Often, they work for multiple clients, and they cover their own business expenses. They are also usually hired for a specific project and do not receive employee benefits from the company.

Tax Withholding Responsibilities

For a W-2 employee, their employers usually act as the tax intermediary. Employers calculate and withhold federal, state, and local taxes from every employee's paycheck. They also pay a matching portion of the Social Security (OASDI) and Medicare taxes. Employers have to send and file this form with the IRS.

W-9 contractors have no taxes withheld from their payments. A contractor receives their full gross pay and is responsible for calculating and paying their own taxes. This includes income tax and the entire self-employment tax. They also usually make quarterly estimated tax payments to the IRS.

Filing Deadlines and Reporting Requirements

For W-2 reporting, there's a deadline to file this form, which is January 31st. By this date, employers have to provide W-2s to employees and file them with the SSA. They report wages and withholdings to the government annually.

Businesses collect the W-9 forms and hold them on file. They use that information to prepare and send Form 1099-NEC to any contractor they paid $600 or more. Then, they would have to file a copy with the IRS. They don't file the W-9 itself with the IRS.

Read more: What Does Ytd Mean On A Pay Stub? A Clear Guide.

How To Determine if You Need a W2 vs W9 Form

To determine a worker classification, the IRS uses a "Common Law Test" based on these categories:

• Behavioral Control: This has to do with who controls how the work is done. Is it the employer, or does the worker work based on their own personal schedule?  

• Financial Control: Has to do with who controls the finances associated with the job. A W-2 employee uses the tools provided by the company. However, independent workers use their own tools and cover their expenses. They may either make a profit or suffer a loss based on their management of the project.

• Relationship of the Parties: This refers to the nature of the relationship between the employer and employee. For example, employee benefits like vacation pay, insurance, or a retirement plan for W-2 employees. 

All of these can help to know "What is the difference between W9 and W2 employees?"

Also check: Generate your pay stubs using our accurate AI pay stub generator. 

Risks of Misclassification and How To Correct It

Misclassifying a W-9 worker for a W-2 employee is a common mistake. However, it has penalties that the IRS and the State Labor Department look for. A business that's found to have misclassified workers can be held liable for:

• All back payroll taxes (both employee and employer shares) not withheld by employers.

• Unpaid federal income tax and state income tax.

• Interest and massive penalties on top of what you owe.

• Unpaid overtime wages, missed employee benefits, and other violations of labor laws.

Steps To Reclassify a Worker Correctly To Avoid Penalties

If you discover that you misclassified an employee as a contractor, here's what to do:

1. Stop using the wrong form

2. If you know they are employees, simply reclassify them immediately. However, file IRS Form SS-8 if you don't know the classification and need a formal ruling. If unsure, either the employer or employee can file.

3. Onboard the worker as an employee and make sure they fill out a Form W-4 and Form I-9. Add them to your payroll system and start withholding all applicable federal and state taxes.

4. Check the IRS Voluntary Classification Settlement Program (VCSP) to reclassify workers. To qualify, you need to meet specific requirements. 

Further reading: Help, I Lost My W2! What Are My Options To File Taxes?

Final Thoughts

Understanding the difference between W2 vs W9 forms is important for employers and business owners. Employers should try not to misclassify employees to avoid penalties. For workers or employees, know if you should get a Form W-2 or provide a Form W-9. This allows you to plan for tax bills and understand your rights. If you need further help, consult professionals or use the available IRS resources.

For employers who need to generate W2 forms, use our W2 form generator. And for ongoing payroll records, you can also use a pay stub creator to make professional pay stubs for your employees. Visit us now!