Are you an independent contractor, or do you hire independent contractors to work in your business? William Perez, Guide to Tax Planning, recently wrote an excellent article on issues to be aware of with the W-9 form for independent contractors.
Form W-9 is a tax document that must be signed by independent contractors, to provide a taxpayer ID number (Social Security Number or Employer ID). If the employer doesn't have a taxpayer ID, or if the taxpayer ID is incorrect, the independent contractor must have federal income taxes withheld (it's called "backup withholding"). Here is his article, with my comments.
Form W-9 is a standard tax document often utilized in business and financial transactions. So by itself a W-9 form doesn't pose many problems. Still there are some simple issues to be aware of.
Do you know the person or business asking you to fill out the W-9? Because the Form W-9 is asking for your name, address, and Social Security or Employer Identification number, you should exercise caution in giving out that information. Be sure that you know who is asking you to fill out the form, and why, and how your tax information will be used.
Be sure to transmit the W-9 securely. The W-9 contains sensitive information which should be kept private and secure. Don't send your completed W-9 as an unsecured or unencrypted email attachment. Instead use secure methods of transmission, such as hand delivery, mail, or encrypted file attachments to an email. (Employers of independent contractors don't transmit W-9 forms; they are kept in the employment file.)
Receiving a W-9 when you expected a W-4 instead. If you are starting a new job and your new employer hands you a W-9 to fill out, ask if your new job is as a self-employed contractor or as a employee. Employees fill out the Form W-4 to set their tax withholding level. Self-employed persons, by contrast, don't have taxes withheld. (If you are not sure about your status, read more about the difference between employees and independent contractors.)
Read William's complete article, which also discusses issues with independent contractors who are LLCs.
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