Self-employed individuals or contractors are required to submit their Social Security Numbers or business Tax Identification Numbers to their clients by using Form W-9. Taxpayers also certify that the SSN and business/employer TIN are correct. If the individual still waits for the SSN to be issued, it must be indicated in the form.
In case the taxpayer has an outstanding tax obligation, the Internal Revenue Service will issue a notification mandating the taxpayer to pay the mandatory backup withholding until the satisfaction of tax debt. Backup withholding is also required when the taxpayer’s name and Social Security Number in Form W-9 are different from the records in the IRS. If the individual does not fall into the two circumstances previously mentioned, the former is required to make a certification that he or she is not covered by backup withholding.
Backup withholding means that the taxpayers are subject to a withholding tax of 28% on disbursements made to them or their business. It is essential to file W-9 form since some financial institutions and insurance broker or agents require this document especially if the individual will earn trading stocks, dividends, interest income or similar securities. Furthermore, withholding agents also require W-9 Form to ensure that the individual is a US citizen. For taxpayers contracting with an independent contractor, it is crucial to ask for W-9 at the commencement of the contract. It is also valuable to request for a signed W-9 Form prior to the release of more than $600 payment to the same contractor within the same taxable year.
An updated W-9 Form must be filed to the Internal Revenue Service once there is a change in the tax information. Examples of changes in tax situation include a change in Employer TIN or SSN information or in the name of taxpayer’s business.
Category: Tax Return Forms, and Tax exemptions. An exempt payee must also claim exemption from backup withholding or a withholding tax of 28% on disbursements made to the taxpayers or their business. This is done by certifying that the individual is not subject to backup withholding. W-9 form is an official document that asks for personal tax details so that the requesting party or company can file the appropriate tax credentials to the Internal Revenue Service. In most cases, the requesting company or business pays an individual any reportable income like non-employee compensation, dividends, and interest.
Link to IRS website: http://www.irs.gov/pub/irs-pdf/fw9.pdf