W Forms

W forms are closely related to hiring contractors and employees. The most common ones businesses have to deal with are W-2, W-3, W-4 W-8BEN and W-9. Let's start from W-9

W-9

While we often use it in a context of hiring contractors, it is simply a request for a tax id and can be used for various reasons, such as when paying for services, interest or dividends. Typically, you should request this form from your vendors, contractors, clients and so on if planning to pay them more than $600 a year. Filling out is very simple.

  • Line 1: Full name of the payee

  • Line 2: (optional) If the payee has a separate business name

  • Line 3: Tax classification (single-member LLC will be classified as individuals)

  • Line 4: (optional) If the payee has tax exemptions

  • Line 5,6: Payee's's address

  • Line 7 (optional) if assigned an account number

  • Part I : Payee's tax id

  • part II : Payee's or its representative's if a company signature

This form does not need to be sent to IRS but must be kept in hiring company's records.

W-8BEN

W-8Ben is typically required when making payments to foreign persons including contractors that are individuals. It simply certifies the foreign status of the individual.

  • Part I : provides basic information about the person

  • Part II : person can claim international tax treaty benefits

  • Part III : person signs and certifies

This form does not need to be sent to IRS but must be kept in hiring company's records.

W-8BEN-E

W-8Ben-E is typically required when paying foreign entities. It simply certifies the foreign status of the entity

  • Part I : provides basic information about the entity. Chapter 4 looks complex but luckily the most common answer will be Active NFFE (non-financial foreign entity) In the identification of Beneficial Owner

  • Part II : will most likely be left blank unless it's a branch of foreign financial institution in a country other than the institution country of residence

  • Part III : International tax treaties can be claimed.

  • Part XXV : complete if chosen NFFE in Part I

  • Parts IV - XXIX are only required if chosen other than NFFE in Part I

  • Part XXX : signature and certification.

This form does not need to be sent to IRS but must be kept in hiring company's records.

W-4

W-4 is typically required when hiring an employee and should be completed before employee's first paycheck. This form collects key information from the employee, such as name, address and social security number and provides information that helps employer withhold correct amount of taxes from paycheck.

  • Step 1: provides the name, address, SSN and tax filing status of the employee.

  • Step 2: if the employee has more than 1 job provides adjustments to the withholdings.

  • Step 3: employee provides information about his or her dependents

  • Step 4:

    • a provides other income not from jobs

    • deductions (in most cases the standard deduction)

    • extra withholdings figured out in step 2's worksheet.

  • Step 5: Employee signs and employer enters it's name and tax id

This form does not need to be sent to IRS but must be kept in hiring company's records. This form is filled out by employee and typically employer is not responsible for wrong information on the form.

W-2 & W-3

W-2 is a summary of the payments, tax withholdings and pre-tax expenses such as health insurance, made to and on behalf of an employee during a tax year. Employee uses W-2 form to file his or her taxes. It is employer's responsibility to provide timely W-2 forms before February of the year following the tax year. Copies must be sent by employer to IRS, Social Security Administration and the state of employee's residence if that state has individual income tax.

W-3 is a summary of all W-2 forms filed for the year. It summarizes total compensation paid and withholdings made to and on behalf of all employees of the company during the year. Copies must be sent to Social Security Administration before February of the following year.

Filing these forms may be complex and overwhelming and it is recommended to use payroll processors that will handle the forms for the company.