W-2 vs. W-9: Which Form is Right for My Business?| CorkCRM

deciding on tax forms w2 or w9 for your painting contractor business If you're just starting out as a home improvement contractor, you likely have a lot of burning questions about running a business. One such question might be this: Should my employees be filling out a W-9 or a W-2? It's a common question, and for good reason. Knowing which form is the right one to issue to your employees takes some research. Luckily, we've done the research for you. Here is some essential information about the W-2 and W-9 forms, as well as our suggestion for which one your company should use.

What is a W-2 form?
When a worker fills out a W-2, they provide their employer with the information necessary for withholding federal and state taxes from their paychecks. This means the individual is considered as an employee and, as such, is covered for worker's compensation and disability. They will also be eligible to collect potential unemployment benefits. The Internal Revenue Service (IRS) defines an employee as an individual whose employer is able to control what duties will be performed and how. This is so even if the employee is given freedom of action, so long as their employer still has the power to manage the details of their work.

What is a W-9 form?
Workers who fill out a W-9 are considered independent contractors and do NOT have taxes withheld from their paycheck. Instead, federal and state income taxes are paid with their annual tax return. Similarly, these workers are not eligible for the above benefits. As defined by the IRS, an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Similarly, in the case of an independent contractor, the business does not have the right to exercise financial control over the individual, nor does there exist an employer-employee relationship between the parties (based on contractual obligation and employee-type benefits).

Which form should I issue?
As a contractor, it is usually in your best interest and that of your employees to distribute W-2 forms. A W-9 is reserved for those who set their own hours, use their own tools, and work at home or on their own property. Given that your employees are working according to your hours and performing potentially dangerous labor on a client's property, you'll want to be prepared in the case of an on-the-job injury or some other mishap. If you're still unsure about whether or not a worker is considered an employee or an independent contractor, you can visit the IRS website for further details on the distinction between the two. You can also let the IRS determine their status by filling out an SS-8 form.