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When arranging to do work remotely, how can you verify that the client is legitimate and that you can trust them with your personal tax ID (social security number in the US)?

In the US, employers are required to get your tax ID if they want to deduct the amount they pay you from their income, so it's reasonable for them to request it.

All of the remote work I've done so far has been for clients that were vouched for by someone that I trusted. In some of those cases, the client wouldn't make any payments until I sent them my Tax ID.

This question is specifically about dealing with a situation where you don't know anything about the client. For example:

  • You reply to a listing they posted on a job site.
  • They contact you on your site or through a site where you've posted your resume.
  • They are not a large company with an easy to verify existence and history.
  • They are a small company, which may have been founded 10 years or 10 months ago.

So what do you do when a new client wants your tax ID before they will make any payments?

Is it reasonable to ask the client for references? If so, what kind of references and how should they be verified?

Some possible reference types I've thought of:

  • People who've worked for them.
  • Some of their clients/customers.
  • The bank where they maintain their business account.

I realize that there's a certain amount of trust required on the part of both parties when doing remote work, but how do you go about minimizing the risks of giving out your tax ID?

  • 1
    You should tag your question "USA" since it is very specific to USA. In Europe, for example, your tax id is always public if you run a company (even as self/employed) – Danubian Sailor May 31 '13 at 16:44
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In my experience, clients who I've done contract work for haven't asked for this until the end of the fiscal year, when their accountant starts pressing them to get their taxes in order.

My experience comes from dealing with small startups, where there's not a lot of process in place. The mutual trust came from the fact that they already paid me hundreds or thousands of dollars in exchange for the work I've done.

When they asked for my tax id, I didn't give it a second thought.

Now, if you're doing work for a larger client, they may very well want your tax id in advance. In the United States, you can go to the IRS Website and apply for an EIN Federal Tax ID, which means you don't have to give your personal social security number to clients who contract with you.

If that's not an option, just do some basic research on the client. If they're well-established, they likely have a website, some reviews, public artifacts on the Internet that verify that they exist and are indeed legitimate. If something doesn't feel right, move on and find another client.

Protecting Yourself:

As far as what to do if a potential client asks for your tax id before you start work, here are a couple things you can do to protect yourself:

  • If a representative from the company asks for this information, tell the representative that the EIN (or tax ID) will be included on your first invoice you send to them and that this is your preferred method for transmitting this information. If this satisfies both parties, move on.

  • If the representative prefers that you send this information before you start working, try to include the EIN or tax ID in your contract. In the LegalZoom article titled, "Hiring Independent Contractors", LegalZoom suggests businesses note the contractor's business name and tax id in the actual contract:

A written contract. Outline the nature of the relationship since merely saying the person is an independent contractor doesn’t make it so. Indicate the project’s expected results, fee and date(s) of completion. The contract should state the worker should use his/her own equipment/tools, is free to hire others without your approval, and that he or she provides liability insurance for his/her workers. Note the contractor’s business and tax I.D. number. Make sure the contract is signed by both parties and create a new contract for each new project.

Including it in the contract shows that you attempted to establish a business relationship with the other party, and will leave a paper trail for you to follow in cases of fraud.

  • Lastly, keep in mind that one of the purposes of a Federal Employer Identification Number (EIN) is for fraud protection.

According to the Nolo Legal Encyclopedia, Does a sole proprietor need an EIN?, preventing identity theft is one reason for having an EIN:

...many sole proprietors still elect to use an EIN because it reduces the chances of identity theft and banks often require one to open a business account.

And according to LoopHoleWy's Tax Basics for Startups, using an EIN protects your personal identity if you pay independent contractors and must issue 1099-MISC forms. However, this works both ways, as someone receiving 1099-MISC forms from employers, using an EIN offers you the very same identity theft protections by not exposing your personal tax ID or social security number.

While I'm not familiar with tax laws in other countries, whether or not this applies in this case or not, for anyone interested in such identity theft protections in your own locale, check your local and federal laws to see if there exists business tax ID's which you can use to protect your own personal identity.

How to tell if a company is legitimate:

Of course, as I mentioned earlier, if the deal doesn't feel right, move on and find another client. Here are some things to look at to help determine whether or not a potential client is legitimate:

  • Do they have an up to date website that looks professional and modern? If not, what industry are they in? If they're in IT and don't have an up to date website, this may be a red flag.

  • Are there online reviews of the company from past or current employees, including contractors? If 90% of the reviews aren't positive, this may be a red flag. Specifically, look for negative reviews that indicate employees or contractors were treated poorly when it comes to financial compensation. A few bad reviews may be normal and may just be from people who were rightfully terminated or who simply like to complain, but a significant number of bad reviews is a red flag.

  • Does the business have a good reputation with other vendors and customers? If a business doesn't have a good rapport with its customers, this may also be a bad sign. If they don't treat their customers well, it's possible they don't treat vendors well, including contractors.

In summary, if something doesn't feel right, move on. But if you do move on, be sure to protect your personal information by using information specific to your business, and make sure you maintain a paper trail from the initial contract including all invoices.

  • I'll rewrite my question, the point is that they want your tax ID before they will make any payments. I've done a number of remote jobs without encountering this specific situation and like you, it hasn't been an issue, but that's not the question. Your suggestion about using an EIN is appropriate and would be useful to someone who is looking for an answer in the future. Perhaps you could look at my updated question when I finish and edit your answer to address the circumstances described rather than situations where it's not an issue? – codewaggle May 31 '13 at 4:24
  • As a note, applying for an FEIN takes about 5 min or did last time I applied for one. It is fully automated and at least when I got mine, there was no need to wait for paperwork. You get one from the web site when you fill out the form... – Chris Travers May 31 '13 at 7:08
  • Good info, I had the same experience when I got mine last year. – codewaggle May 31 '13 at 9:09
  • @codewaggle - I addressed that issue in the last two paragraphs. Just do your research. If no one has anything nice to say about the company or its officers, then find other work and move on. You can tell relatively quickly whether or not you can trust someone just by looking at their past behavior -- this includes corporations as well. Also, Chris is right. It took me minutes to get my EIN. When one of my clients asked, I sent my EIN the next day. With that said, I'll take a look at your updated question later when I get time. – jmort253 May 31 '13 at 13:59
  • Hi codewaggle, I just added more information here. Hope this helps! :) – jmort253 Jun 4 '13 at 5:48

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