What does exempt payee mean

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Backup Withholding Definition A backup withholding is a type of tax levied on investment income when the investor withdraws those funds. Form W-2G: Certain Gambling Winnings Form W-2G is a document showing how much an individual won from gambling activities and what amount, if any, was already withheld for taxes. What You Need to Know About Statutory Employees A statutory employee is an independent contractor that is treated as an employee for tax withholding purposes if they meet certain conditions.

Investopedia is part of the Dotdash publishing family. Entities also included in the exempt status are nonprofit organizations or trusts and corporations. Individuals who would not be considered exempt, yet would be required to complete a W-9 form, include freelancers and sole proprietors of a business.

If an individual, or group, claims exempt status and completes a W-9 form, claiming that status, the employer is not required to withhold taxes. The W-9 form must be complete, with the exempt box checked, a complete and valid taxpayer's identification number and signature.

There can be several reasons that the IRS will not accept the exempt status, such as federal taxes are owed, the taxpayer's identification number is incorrect and if all dividends or interest is not reported. The W-9 form is used for tax exempt payees. Exempt payees can check the relevant box on the form if applicable.

If the box is not checked, it is automatically assumed that you are nonexempt and that backup withholding is a requirement. A W-9 certifies an individual's taxpayer identification number i. Completing the form does not typically result in you having any withholding tax subtracted from your received payments. However, you may be subjected to backup withholding if the W-9 form is not returned or if you fill in an incorrect taxpayer number.

Your organization may also find itself subjected to backup withholding if you fail to provide accurate earnings data on a tax return for example, missed or incorrect interest and dividends.

If you are currently dealing with a situation where you are uncertain as to whether or not you qualify as an exempt payee and you need further advice, you can post your legal need on UpCounsel's Marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site, and they come from schools such as Harvard Law or Yale. Some workers, such as freelancers and independent contractors, receive payment from non-employer sources, called payers, for the work they do.

Certain payees, whose income is not subject to backup withholding, are considered exempt payees as defined in the W-9 instructions. The payee's earnings would not ordinarily be subject to withholding, but they become so under certain circumstances.