The Calculation of W-9 Income Tax

The fillable W-9 form is an agreement between not the employer and the employee, but between the client and his contractor who finds those employees later. The document has an objective to inform the contractor’s taxable identification number to the IRS so that the business or client can pay the contractor not only his/her wages but also the taxable compensation. As a rule, the income that the contractor earns under the arrangement is not exposed to any income tax withholding. Only the Internal Revenue Service has the right to set backup withholding either on the contractor or the client if there are solid reasons for that.

However, despite this, one is still obliged to report the compensation on the tax income return, as well as pay all the taxes set.

How You Can Determine Whether Your Income is Exposed to Backup Withholding

Generally, a contractor faces backup withholding in the case he refuses to provide his TIN or falsifies the information requested. For such cases, the payer has the right to withhold a certain fixed percentage of the tax. The Internal Revenue Service notifies the business about the decision, yet may also send a notification directly to the contractor, too.

When you, as a sole proprietor, receive an income from the payer, it involves the compensation for your services. And in case you are interested in the rate of the flat backup withholding you might face, checkyour income and multiply it by 0.28. That will be the income tax withheld.

Nevertheless, these are the rules set prior to December 22, 2017. The Internal Revenue Service has announced to update the writable information about the tax withholding calculator at the beginning of 2018. In the second month, all the payroll services, as well as employers will be due to implementing the new changes.