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Question
Am I really an "exempt payee" on the w-9?
I've looked up about 10 different answers to this question and everyone says that generally, yes, sole proprietors should check exempt status if they have not been notified otherwise by the IRS. But the form says:
"Generally, individuals (including sole proprietors) are not exempt
from backup withholding. Corporations are exempt from backup
withholding for certain payments, such as interest and dividends."
And then it lists a bunch of specific exceptions, like financial institution, District of Columbia, real estate investment trust, or United States agency. But nothing that sounds like it applies to me at all. What is going on??
Ghost of Zeus, why does every single other answer I've found say that basically everyone is exempt?? Did you read my question? That was it.
Best Answer
The language is confusing.
The law that established backup withholding included a list of entities (such as foreign governments or U.S. states) that could NEVER be subject to backup withholding, no matter how badly they behaved. These are exempt payees.
For everybody else, you could be subject to backup withholding, but only if you did something wrong like failed to report income on your tax return or failed to pay your taxes AND, after you did this bad thing, the IRS notifies you that you are subject to backup withholding.
By checking the box, you would be claiming that you are one of these special entities that could never be subjected to backup withholding under any circumstances.
By not checking the box, you are not saying that IRS has notified you that backup withholding should commence. You are just saying that if in the future you violated the tax laws, there is a possibility that someday the IRS might be able to impose this sanction upon you.
Not checking the box will not cause your payers to automatically start withholding taxes from you. That is because in Part II you certify that the IRS has not yet sent you a notice that they want to start backup withholding. Your payers will only start withholding taxes if you scratch out the statement in Part II that says that the IRS has not yet sent you a notice to start backup withholding.
Other Answers
Okay, so you're not exempt. 30% of the amount you invoice will be withheld by your customer/client, who will have to issue you a 1099 and send the 30% to the IRS. Happy?
by Ghost of Zeuz - 2 years agoShort answer:
If you have not been notified otherwise, then you are not "subject" to backup withholding, but you do not check the "exempt payee" box either. Simply completing the rest of the form and signing it without crossing out any text is enough to prevent backup withholding.
You check the "exempt payee" box only if one of the "specific exceptions" applies to you.
If you have been notified that you are subject to backup withholding, then you cross out the text "I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and" in Part II, item 2.
Long answer:
The answers that say "basically everyone is exempt" mean that you are exempt from the requirement to cross out the text "I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and" in Part II, item 2, and that you are not subject to backup withholding. They do not mean that you check the "exempt payee" box.
The badly written instructions that say "Generally, individuals (including sole proprietors) are not exempt" mean only that item "(a) I am exempt from backup withholding" does not apply to you. They do not mean that you are subject to backup withholding. If item (b) or (c) applies to you, and item (a) does not, then you are not subject to backup withholding, but you do not check the exempt box.
Source(s)
www.irs.gov/pub/irs-pdf/fw9.pdf
by StephenWeinstein - 2 years agowhen completing a W-9, corporations are exempt from withholding as well as not being required to be issued a 1099
until the payer has been notified by IRS to withhold(backup withholding) on any future payments to you, you essentially are exempt
this will occur when your income is such that there is a sizeable tax liability, especially se taxes, that you have not previously paid in with your estimated and you have been sluggish in paying what you owe
