You don’t have to be a freelance for very long before you’ll be asked to fill out a W9 in preparation for your self employment taxes. For those of you who have traditionally earned most of your income as an employee, you may not have much of an idea what it is for or how to fill out a W9 form, or how to prepare for it with every invoice template you create and send for payment.
Fortunately, there are few things simpler than this necessary tool for anyone working as an independent contractor.
This form performs much of the same function as a standard W-4 (the form used by employees of businesses each year). While it doesn’t get into all the details of making you calculate a number of dependents for tax withholding, this is because you – not your freelance client – is responsible for figuring out how much tax to pay the IRS each quarter. Clients don’t usually have the responsibility of helping you pay your taxes.
The W9 will ask some basic info, such as your name, mailing address, social security number, and how you plan on classifying your business (independent vs. sole proprietor, for example). There is also the option of providing an EIN (Employer Identification Number) instead of a social security number. Some freelancers like providing this number instead as a way of protecting their social security info, but it’s not mandatory to do this.
Note: If you do want to substitute an EIN for a SSN, it’s free to do so. You simply need to reside in the U.S. and be able to fill out this form online.
You’ll also be asked if you are subject to backup withholding. If you have not been told that you need to do this (usually by the IRS for failure to pay taxes or report properly) than you simply certify that you are exempt from withholding. Most freelancers will be exempt, but if for some reason you aren’t, your client will be responsible for withholding 28% of your paycheck to send to the IRS.
Did you know that you can use Bonsai for accounting? Or that Bonsai can help you be prepared for self-employment tax by providing tax estimates, filling date reminders, and identifying your tax write-offs?
Let's see how that works. First, head to your main Bonsai dashboard and have a close look on the left side - we'll be working with the accounting and taxes sections. First click on "Accounting".
Inside the accounting section, you'll see a breakdown of your income and expenses. Both can either be automatically imported from your bank account, or manually added. Work you got paid for via Bonsai will also be registered here.
Make sure this section is properly filled in and click on "Taxes" next.
This is where the magic happens: Bonsai will do all the calculations for you, and we'll provide you with an overview of your tax estimates, a list of tax deductions you can use for the upcoming tax season, and reminders for all the upcoming filling dates.
Simple, right? If you're ready to check out Bonsai and explore all the features, go ahead and sign up for the free trial!
One big mistake that many freelancers make is in keeping their information secure. It is recommended that you never email your completed W9 to a client as an attachment to an email, unless you have some form of encryption on your messaging system. Otherwise, you can use a secure document electronic document delivery service, or send your form to your client in the mail.
It is also advised that you never provide a completed W9 form to anyone you don’t have a legitimate working relationship with. In other words, it’s wise to wait until you have a completed contract on file, explaining the independent contractor partnership, before you fill out a W9 form with your sensitive information.
How often should you update your form? It depends. Generally, you can keep the same one on file with your client for as long as the information included on it is current. If your address, name, withholding, or tax numbers change, however, you’ll need to send them a new form with the correct info. Some clients also ask for a new form each year or when they update their systems. While it’s not common to ask for this, filling out a new form takes just minutes and is a good way to keep your clients happy with their accounting departments.
A W9 form is required to be on file at each client you do business for. The information provided helps them to fill out and issue a 1099-Misc later in the year. The 1099-Misc is the contractor’s equivalent of an employee’s W-2, and you’ll be using the numbers included to help you file and pay your taxes.
While most clients will be proactive and ask for you to fill out a W9 form when you start doing business with them, you may run into a client who isn’t aware that this needs to be done. It may only occur to them that there is a need when it comes time for them to do their own taxes, and they go to fill out the 1099-Misc for reporting your income. A good freelancer will anticipate this need ahead of time and provide a W9 to new clients even before they ask. By making it part of the onboarding process, along with the contract and invoicing terms, you’ll have it out of the way in plenty of time for tax season. Remember, you can use Bonsai tax to calculate your tax deductions and estimate quarterly taxes.
(Note: There are many things that can hold up your taxes each year, and among them are the various forms you’ll receive. If you can think ahead and help your client streamline some of this, it will help you to avoid delays in getting your forms each year. No one wants to wait on a tardy 1099-Misc, and having the W9 on file can prevent this situation. You don’t want to be one of a dozen or more freelancers waiting in line to get tax form issues resolved!)
Despite the straight-forward nature of this form, there are still freelancers who report clients or other entities who aren’t sure what they are for. In particular, they might get a request to fill one out from someone other than a client
While you can get a request for W9 from anyone paying you non-employee compensation, you will probably know about it ahead of time.
Interest and dividend payments are often made with the information contained on a W9, so don’t be surprised to get a request from a bank or other financial institution you do business with. Your landlord or other company, however, would never need this info. If the company or person isn’t paying you for services or the value of assets, there is no need to ask you for this sensitive info, and you should ask for further information before complying.
W9’s also have the benefit of establishing how you’re being treated in relation to the business you’re working for. If you receive a W9, the assumption is that you are an independent contractor and the working relationship would be treated as such. You wouldn’t receive employee benefits, for example, and you would have the freedom to come and go as a freelancer would. You would enjoy the perks and responsibilities of a consultant and not an employee.
There have been instances of regular employees being asked to fill out a W9 tax form. If you’ve been hired for full or part-time employment, this should be a red flag. Employees should be paid as employees, through the information gathered from a W-4 and reported as income on a W-2. If a business appears to be skirting the law by reclassifying your compensation, you should seek counsel to resolve the matter as soon as possible. The IRS is not lenient when it comes to taxes being paid appropriate, and it’s up to you to know how you are classified and fill out the corresponding paperwork.
While a necessary tool for doing your freelance work, the W9 shouldn’t scare you or cause you concern. Think of it as a quick and legal way for your new client to pay you and stay above-board with the IRS. Filling out W9’s should be as painless as signing a contract or sending an invoice. It’s a sign that you are growing your business. Rather than worry about it being a cumbersome form, celebrate that you’ll soon be earning more income and that you’re truly a successful freelancer now!
For additional info on the W9 form, including an updated copy of it, you can visit the IRS site directly. For help with taxes, or to experiment with Bonsai's suite of freelance products sign up for a free trial!
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?