Any compensation other than salaries or wages received has to be processed through filling out a special blank if the payer owes you more than $600 on an annual scale. IRS W-9 is a formal request for providing details on your taxpayer identification number then to be used for an information return. These blanks record external financial payments and help the IRS regulate freelance services to track taxes.
Why is a W-9 required?
Generally, any income resulting from a W-9 agreement does not have to be subjected to IRS withholding. A W-9 form keeps tabs on self-employed income, and as long as it is the payee’s responsibility to manage tax returns rather than the payer’s one, this simple blank is intended to trace freelancers and their business. Contractors are required to estimate payments throughout the tax year while companies using external workers can claim all side money agreements openly.
So, on the one hand, freelancers fall under lower tax rates as they are not officially employed. On the other hand, companies and organizations are released from additional payments when working with independent contractors – employers do not take calculators and subtract taxes thanks to the formality of a W-9.
What is exactly required?
Requirements for a W-9 are of more technical character because you provide personal details as a taxpayer with respective precision: copy required information 100% accurately. There is nothing vague about the blank – only straightforward tax terminology which you might be unfamiliar with. To start with, go to the IRS official website and download a form. You will come across some specific terms which are as follows
- Backup Withholding. Although, in general, no percentage of income is held through a W-9, some situations prescribe withholding. You denote there the amount of money remitted to the IRS from your freelancing in terms of per cents.
- TIN. Taxpayer Identification Number is obligatory data to be filled in the blank. For business entities, EIN (Employer Identification Number) is required while individuals provide their SSN (Social Security Number).
- Exemptions. This section can be applied only to business organizations. As long as entities are exempted from withholding for non-employed contractors, they enter the code to indicate that.