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I am in USA. I am US citizen.

Apart from my 9-5 (W2) job I work on the side creating videos for an online website. Few days ago they are requiring that I fill out a W9. I also have to specify if I am exempt from backup withholding.

I am not sure what backup withholding is but I believe it means to hold the amount or cut little bit of tax from my earnings.

How do I find out if I am exempt from backup withholding?

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If you have not been told by the IRS in a formal letter that you are subject to back-up withholding, then you should answer that you are not subject to back-up withholding when filling out the W9 form. Those people who have been told that they are subject to back-up withholding have bee. understating their income regularly (by not declaring all income on the income tax return) or have previously given an incorrect Social Security Number or Employer Identification Number to another payer. So, if you answered Yes, I am subject to back-up withholding on the present W9 (whether truthfully or not), the payer must withhold income tax (24%) from all money paid to you. People subject to back-up withholding don't get a tax bill at tax time from the IRS as another answer claims; instead, they get only 76% of what is "owed" them by the payer, and if they don't declare any of this money (neither the income nor the tax withheld) on their tax return, at least the IRS has gotten some tax revenue from them. As dwizum points out in a comment, regardless of how you answered the question on the present W9 form, if the website cannot validate the Social Security Number or Employer ID number that you have so thoughtfully provided them, then the website will withhold 24% from all payments it makes to you even though you have claimed that you are not subject to back-up withholding.

  • This isn't really the whole picture though. If you receive income on a 1099, the entity paying the income may be required to withhold from your payment in certain situations (i.e. if they cannot validate your SSN). In these cases, the recipient isn't informed ahead of time by the IRS. – dwizum Oct 10 at 20:11
  • @dwizum The question asked was about what to say in response to the question "Are you subject to back-up withholding?" and not about what is on a 1099. If a taxpayer has contracted to get $X for a video (or the website is promising $X for each video), the fit will hit the shan as soon as the taxpayer is paid only 76% of $X instead of $X for the first time. – Dilip Sarwate Oct 10 at 20:17
  • Understood - I wasn't trying to disagree with you, just pointing out that backup withholding can happen in circumstances other than "you get told by the IRS ahead of time" as described in your opening sentence. – dwizum Oct 10 at 20:21
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Basically the W9 is just to reveal that you are an independent contractor getting paid from the website you are currently getting an income from. Backup withholding basically means you have to properly report your name and social security number to the payer.

Instead of your taxes being withheld by your employer in a w2 form. You would get a tax bill (if owing) during the tax season (Jan-April 15).

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    Thanks! So if I am saying that I am exempt from backup withholding then the online website is not going to cut any tax. I will be responsible for keeping track of how much I owe in taxes and I should also pay estimated quarterly payments so I am not slapped with a penalty in the end if I owe more than X amount of tax. – john doe Oct 10 at 19:48
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    @johndoe correct. BWH is for those naughty people which the IRS has caught not paying their taxes. – RonJohn Oct 10 at 19:51
  • @RonJohn and for people who the IRS suspects are about to try to not pay their taxes! (even if they've potentially always paid them in the past). – dwizum Oct 10 at 20:12
  • @dwizum when does the IRS think that (which does not include the many times where the IRS mandates that the payer withholds from everyone, even when you are normally subject to BWH)? – RonJohn Oct 10 at 20:36
  • @RonJohn My comment was meant somewhat tongue in cheek. Payers are required to keep backup withholding from 1099's when they can't validate the recipient's identity (i.e. they provided an invalid SSN, or didn't provide one). This is intended to get the IRS some level of income from people who may be deliberately providing a fake ID in the hopes that doing so will mean they will be able to dodge taxes at the end of the year. In practice it sometimes means that taxes are withheld from people who just happened to incorrectly identify themselves. – dwizum Oct 10 at 20:39

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