How to Calculate Tax on a W-9

by Alia Nikolakopulos, studioD

Form W-9 is used to provide your taxpayer identification number to an individual or business that pays you taxable compensation other than wages. You may be asked to provide Form W-9 before you can receive payment for your services. In most cases, income earned under a W-9 arrangement is not subject to income tax withholding unless the Internal Revenue Service has determined that you are subject to backup withholding. While generally exempt from withholding, you must still report this compensation on your income tax return and pay any taxes due on the money.

Determine if your W-9 income is subject to backup withholding. The payer must withhold a flat percentage for tax if you neglect to sign your Form W-9 or report the wrong taxpayer identification number on the form, or if a mismatch occurs between the name and taxpayer identification number you supply. The IRS may also notify the person paying you that you are subject to backup withholding. In either case, you must receive notification that backup withholding will be deducted from your payments. If you receive W-9 income as a corporation, you are automatically exempt from backup withholding.

Calculate the income you receive from the payer. Your income may include compensation for services you provide as a sole proprietor, partner or individual receiving interest or dividend income.

Multiply the amount you receive by .28 – this is the flat backup withholding rate. The result is the tax that must be withheld from your W-9 income.

About the Author

With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.