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W-4 vs W-9

Updated: Mar 31, 2020

W4 Employee’s Withholding Allowance Certificate (Employee)

W9 Request for Taxpayer Identification Number and Certification (Owner)

When employed, an employee is required to fill out a W4. This is to inform the Internal Revenue that you are currently working and have x amount of exemptions. According to your pay and exemptions, the payroll department will determine how much “payroll taxes” to withdraw from your paycheck every pay period.

When employed as a subcontractor/business, you are required to fill out a W9. This informs the IRS that you are currently working but no payroll taxes will be taken out your check. Instead you will receive your full check and be responsible for paying taxes on your own. Some choose to pay quarterly while others wait til tax season to pay.

As an employee, instead of receiving gross pay (full pay) you will only receive net pay (partial payment of gross after payroll taxes are deducted). For an example: If you were to gross $1600 per month at $10 & 40 hours per week, you will only receive an estimate of $1300 with no exemptions. That’s $300 deducted from your check BEFORE you even get it. $300 x12 = $3,600 withdrawn per year. As an employee, you are not able to write off business expenses like those who fill out a W-9.

An employer would receive an extra $300 more than an employee and they will reap the benefits of writing off their business expenses. Are you familiar with the business expenses? If not look up a Schedule C for starters.

An employee allows the IRS dictate how much taxes they should pay a year, an employer tells the IRS how much they can or should not have to pay per year according to their “WRITE-OFFS”. Some “rich people” pays none! Does that mean their broke? Of course not, they are enjoying the benefits of tax write off’s.

  1. With all this being said W4 or W9? Employee or Employer? Which one do you want to be?

  2. If you prefer an employer, what type of business would you like to start?

  3. What are some obstacles you have to overcome to get your business started?

Remember, a journey of a thousand miles begins with a single step. Take that step into becoming an entrepreneur. The biggest regret in life is the risks you didn’t take. Don’t wait for the right moment, just create the moment. What are you waiting for?

If you would like to learn more about this topic, please feel free to take Manage Finances Workshop.

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