Learn about the necessity of filling out a W-9 form and how to calculate the W-9 income tax. Here, you will find brief yet accurate information.
Every single independent contractor employed by a company or an individual to perform a certain work or project receives an income in accordance with the terms of the contract between the two parties. If this income exceeds $600 per a single tax year, it is to be necessarily reported to the IRS. For this, the freelancer is to complete a fillable W-9 form. The latter is to include the taxpayer identification number, name and surname, as well as the contact data. The contractor, meanwhile, will use the information to fill out the1099-MISC. The amount of the income tax is determined here, in this form.
There are certain aspects to take into consideration when calculating the tax amount you are to pay to the IRS. For this, the freelancer is to deduct the Social Security Tax and the Medicare tax. The first is equivalent to 12.4% when set for self-employed individuals, while the latter is roughly 2.9%. All these calculations are made on the net income the freelancer has on the annual basis. The total income is to be multiplied by 92.35%.
However, there are some points that can have an impact on the tax amount. For instance, if the annual profit of a freelancer exceeds two hundred thousands of US dollars, the Medicare sets an extra tax worth0.9%. The same tax is also set for one hundred and fifty thousand US dollars for wedded ones who file separately, and two hundred and fifty thousand US dollars for married couples who file together.
If the freelancer fails to indicate the TIN in the writable W-9 form, he may become subject to backup withholding. And if you have appeared in such a situation, too, you need to know how to calculate the amount that will be withheld from you. For this, check your profit and multiply it by 0.28 as the 2017 and up-to-date percentage for deduction set by the IRS is 28%.