W-9, W-4, W-2 -- you would think the Internal Revenue Service would run out of form numbers it can use to mystify taxpayers. It hasn’t yet and probably won’t any time soon. The Form W-9, however, is unfamiliar to many taxpayers. If you've been asked to complete one, it means you're among a special group of people. After all, not everyone gets money from someone besides a traditional employer.
What It’s For
The IRS likes to get paid in advance. All year, your employer withholds taxes from your earnings and sends the money to the government. This works well for most people who have regular jobs. The issues arise when you have income that isn't subject to payroll taxes. That’s where a little thing called backup withholding comes in. Under certain conditions, the IRS can require people who owe you money to retain a percentage from every payment as backup withholding. Your W-9 verifies you are not subject to this kind of tax.
What Triggers Requests
If you get any type of income for which you'll need a 1099 at the end of the year, you may be asked for a W-9. For example, if you work as an independent contractor designing websites from your home, every customer who pays you more than $600 during a calendar year may want you to complete the form. If a broker mails you dividend checks, or you have an interest-bearing bank account, prepare for a W-9 request. Individuals involved in bartering or receive royalties may also need to fill one out.
If You Refuse
If you're asked to complete a W-9 and you don’t comply, whoever is paying you must, by law, immediately begin withholding the percentage specified by the IRS. At the time of publication, the rate was 28 percent. Once the backup withholding starts, it won’t stop until you send in a valid W-9. The company that withheld the money isn’t going to return it, either. You only recover the money when you file your annual income tax return.
Don’t think you can circumvent the system by omitting your Social Security number or providing a bogus number. If the taxpayer identification number is missing from the W-9, backup withholding kicks in automatically. A phony number might buy you a little time -- in more ways than one, incidentally -- but the company will be notified, and the backup withholding will go into effect.
Using a fake taxpayer identification number leaves the door open for the IRS to file charges against you. That can cost you money, or earn you a stint in jail. If you refuse to supply the form at all, the most you will normally face is a $50 fine per refusal. If you get 10 or 20 requests a year, like some contractors do, that can still add up to a nice chunk of change.
Jeffrey Joyner has had numerous articles published on the Internet covering a wide range of topics. He studied electrical engineering after a tour of duty in the military, then became a freelance computer programmer for several years before settling on a career as a writer.