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With the rate of technological advancement and the aim of globalization, it is becoming increasingly easy to work from wherever you are at any point in time. The goal is to integrate your lifestyle into work, therefore increasing efficiency and saving more time.
Many multi-national organizations and business owners are embracing freelancing because it is no longer about the high pay rise but the work-life balance.
Being a freelancer or self-employed individual calls for a lot of responsibility than what you think. As a freelancer, you are not expected to evade tax, and your income has to be reported to the IRS (Internal Revenue Service) annually. One of the forms used to submit freelance tax return is the W-9 form. This form is usually completed by freelancers so that their tax information can be accessible by the IRS.
Freelance tax return are used by tax authorities to assess freelancers’ liability for tax. Freelancers fill the W-9 form on behalf of third-party organizations that employ them. It is later used to fill paper works and submit freelance tax return of the third party organization to the IRS. By doing this, IRS will know who did what, for who, and the cost of the job.
For freelancers subject to backup withholding, they have to state it on the form when filling it. The implication is that your employer will deduct your income tax directly from your payment that will be sent to IRS. As an individual consultant, the W-9 is not a tax deduction document for you.
You will have to submit your freelance tax return to the appropriate organization using the appropriate form just as your employer applies the W-9 to report earing and tax expenses to IRS.
IRS is only concerned about how much you are earning from a business gaining insight from your documents. The IRS gets this information from the 1099-MISC form. More often than not, the IRS does not need W-9 from an individual consultant, but you may have a copy should the taxman request it.
How do you know you are subject to backup withholding?
A letter will be sent to you from the IRS stating that you are subject to backup withholding. This happens when you have not declared all dividends and interest received in a tax year.
The major difference is who fills them, while full-time employees make use of the W-4 for tax estimates, freelancers make use of form W-9 on behalf of their clients. The only time full-time employees fill the W-9 is when they receive compensation that is not part of their monthly salary.
That could be in the form of store vouchers, gifts, or cash. Aside from this, only freelancers or independent contractors fill the W-9 because they are responsible for their freelance tax return.
You can refuse to fill the form as a freelancer in the following circumstances;
You should speak to a tax consultant if unsure as to why you need to fill a tax form. Doing this will prevent you from falling a victim of scam since many are out there to exploit your ignorance. The IRs never call or email you about your freelance tax return; if seen, know that it is a scam.