W9 vs W2 Tax Forms: What Are the Differences?

While the W9 and W2 are both tax forms, they serve very different purposes.

Here’s a broad strokes comparison of the W9 vs W2:

The W2 form is provided to the employee by the employer, so the employee can file their tax return. The W9 form, on the other hand, is filled out by a freelancer or independent contractor, and then given to people who may have paid them for services over the course of the year.

W9 vs W2
The W9 vs W2: W9 is filled out by a freelancer for their clients, while the W2 is provided to an employee by their employer.

Which Form Do I Need?

The form you use depends on if you are a long term employee of a company, or one being contracted short term for a specific task or service.

If you have ever been an employee, you’ve likely received a W2 each year from your employer. It’s not something you fill out. The form shows how much you’ve earned, and how much was deducted for taxes and contributed to retirement plans. You can use this form to help file your tax return.

Conversely, if you’re self-employed as a freelancer or independent contractor, you will not receive a W2. Instead you’ll get a 1099. Your taxes will not be taken out for you. You need to calculate your own payroll taxes and then submit the sum to the government.

So when does the W9 form come in to play?

Well, this is the form a freelancer or independent contractor fills out to give important tax information (like the taxpayer identification number) to their clients.

When it comes to differentiating between an employee and an independent contractor. It can be confusing for both the employer, who’s trying to be a responsible business owner, and for the worker. It’s important to use the correct form when tax time rolls around.

Read on to learn more about the W9 vs W2, and how to know the difference between an independent contractor and an employee.

What Is a W2 Form?

Let’s start with the most common IRS form, and one most employees receive at the end of each working year. The W2 form is the form created for an employee by an employer. It shows the IRS information about the money they have made over the course of a year. It also tells what has been paid in taxes. 

The W2 form is used for employees who work for an employer consistently and for whom the employer is responsible to deduct taxes and pay them to the IRS. 

The W2 form contains:

  • Personal contact information from the employee
  • Company name and information
  • EIN or the Employer Identification Number which is how the IRS knows the company
  • Deductions
  • Contributions
  • Salary and bonuses

The amount of deductions is based on the W4 form the employee completes upon being hired. The W2 form is needed to file taxes for tax returns each year. 

What Is a W9 Form?

A W9 form is filled out by independent workers, freelancers, or contract workers. 

Let’s say you as an employer hire a general contractor to work with your business on a project for three months. The contractor is technically being employed by you. Yet, as an independent worker, they will be responsible for paying their own taxes to the IRS and the state. 

Still, the IRS wants you to report how much you paid this worker.

So this is when the contractor must provide the W9 form to you (the company who employed them) with their EIN (Employer Identification Number) number on it. This connects the independent worker’s information to the IRS, and the person who employed them can report how much was paid to them for the work done.

Employee vs Independent Contractor: When You Are the Worker

As a worker, it’s important to understand when you are an employee and when you are a contractor.

As an employee, you have an employer who is responsible for taking taxes from your wages and paying them to the IRS on your behalf. But, when you are a contractor, you might be getting paid by someone for work, yet you are responsible for paying the taxes on those wages yourself. 

Often, as an employee, deductions will be automatically taken from your pay. You might be paying towards insurance benefits or into a retirement account, like a 401K. The employer does this for you.

Conversely, as a contractor or independent worker, you don’t have someone doing this for you. It becomes your responsibility to do it for yourself, because you are technically self-employed. 

For this reason, many contractors become their own business or corporation. Then they can seek tax benefits for themselves and their business.

Employee vs Independent Contractor: When You Are the Employer

As an employer, you make the decisions about whom you hire and in what capacity. There are certain people you employ to come into work every day and perform regular functions that keep your company running. These employees go on your payroll, and you likely provide them benefits and a W2 form at the end of the year.

You may also find there are times when hiring a contractor for certain tasks is to your advantage. Maybe you only need them for a short period of time. Perhaps they can perform a task that your regular employees are unable to accomplish. You can hire them for a specific job, but they are not a permanent part of your company business plan. 

Furthermore, you won’t be responsible for paying their payroll taxes or benefits, which can be a real savings for you!

But what exactly entails a freelancer vs an employee?

Some companies may try to pay more workers as “freelancers” because they want to avoid paying employment taxes, workers compensation, etc. The line can be blurry sometimes, and you certainly don’t want a lawsuit (such as when Uber had to pay out 100 million to its drivers).

So let’s compare the main differences.

Employee

If you hire an employee, they:

  • have assigned hours and a set schedule
  • get company training
  • have an overseeing manager that assigns work and controls what the worker does and how they do their job
  • do work that is part of the regular business, and integral to its functioning
  • use computers and other materials provided by the company
  • are only be employed by you
  • have a regular guaranteed salary

Independent Contractor (Self-Employed)

If you hire a freelancer or independent contractor, they:

  • will not be tied down to certain working hours
  • will not need company training
  • are able to turn down work or certain tasks
  • do work that is outside of the usual business
  • provide their own materials
  • are employed by other companies
  • get paid on a per job basis
1099 vs W2 Calculator
Use the W2 calculator to choose the best option for your company.

1099 vs W2 Calculator

Contractors who work for a company on an at-will basis are not provided a W2 form. Instead, they’re given a 1099 form. This form provides the IRS with wage information, and the contractor is responsible for paying the taxes on those wages. 

There are some nice tax benefits for companies who opt to employ freelancers. It’s worth working with your tax professional and looking at the W2 calculator to decide which is the best financial route for your company to pursue. (You can access the W2 calculator in this free course.)

Understanding W9 vs W2 IRS Forms

Understanding the W9 vs W2 forms is important for both employers and employees come tax time. It’s also worthwhile for both to consider which makes the most sense for them to pursue in regards to their companies. 

To learn more about how to protect your company or to become your own company as an independent contractor, check out these courses to get more information.

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