Deducting Taxes From Payments Received and W-9 Form

By | February 26, 2014

What are a taxpayer’s options if they filled out a Form W- 9? Is there any way a taxpayer can set things up to have taxes deducted as an independent contractor ?

As an independent contractor, you have to withhold your own taxes, and send a check to the IRS once every three months.


Independent Contractor Taxes

1) Regular 1040 income tax
2) Social Security – Employee’s half
3) Social Security – Employer’s half (which most people on W2s don’t even know exists)
4) Medicare – Employee’s half
5) Medicare – Employer’s half.

You can NOT wait until April 15 and send them a check for all the taxes that should have been withheld during the year.

Filing Taxes as an Independent Contractor

The best you can do is open up a separate savings account, and have 40% of your paycheck direct deposited there, then send it to the IRS when the next Estimated Payment is due (April 15, July 15, October 15, and either January or February 15)

Filing W9 means that you are working as an independent contractor. You are responsible for paying your own taxes. For can make regular estimated tax payments.


1099-MISC Explained for Independent Contractors

You will get 1099-misc instread of Form W2. 1099-misc income: You must file your tax return if your self employed income is $400 or more. You will report your income and expenses on schedule C or C-EZ (Form 1040). Then you put net income (or loss) on line 12 of Form 1040. This income is subject to SE tax at 15.3% (this is shown on line 57 of Form 1040). Half of SE tax is deductible on line 27 of Form 1040.

If you fail or refuse to provide your customer with a properly executed Form W-9 they are REQUIRED to withhold tax at 28% and pay you the balance. In theory this COULD be done optionally at your request though most companies would refuse to do so.

There IS a backdoor way around that, though the company paying you is probably unaware of the law. If you submit a Form W-9 and cross out item 2 in Part II, they are required to withhold tax at 28%. However if you have not been notified by the IRS that you are subject to backup withholding that would involve a false certification. In that case the IRS would not likely pursue the matter but legally it IS perjury on your part.


IRS Form SS-8 for Independent Contractors

The other way is to submit a Form SS-8 to the IRS to get a formal ruling on your status as an employee or independent contractor. If the IRS rules that you’re an employee, taxes will be withheld from your pay. You have not provided any information to determine if you are an employee or a contractor but it’s been my experience that in nearly all cases where there is any question, you’re probably an employee. If you are working for one firm, work a schedule set by them, use their tools and equipment and methods then you ARE an employee and your “employer” is ripping you off and committing tax evasion at the same time.