It’s 1099 season and the January 31st deadline this 2023 draws close! In a previous article we went over the 3 easy keys to navigate the 1099 season. In particular we talked about who to send the 1099-NEC (nonemployee compensation) and in which situation. Check it out here. In this post we’ll talk about form W-9, who must fill them it out and its relationship to 1099s.
Let’s say you’re a small to mid-size business owner and you haven’t collected independent contractors form W-9 throughout the year. Chances are you’ll run into challenges when it comes to getting the contractors’ form W-9. This usually occurs at the end of the year or even during January before the end-of-the-month deadline.
IRS form W-9, “Request for Taxpayer Identification Number and Certification,” is used to collect your vendors’ taxpayer identification number (TIN). This form will also ask for information about their business structure. The employer identification number (EIN) used when you have set yourself up as a corporation or LLC, counts as a TIN. The social security number, used by taxpayers operating without any corporate structure when providing services, also counts as a TIN. In short, the taxpayer identification number may be an EIN or a Social Security number depending on the individual.
It’s important to get W-9s from vendors as then you’ll know if the’ll be required to be sent form 1099. If they are an LLC and a sole proprietor, and you have payed them over $600 dollars — for services — in cash, check, ACH direct deposit, wire transfer, or by Zelle during the tax year, you are required to send them form 1099-NEC. If, however, they are an LLC that has elected to be taxed as an S corp, or if they are otherwise an S corp or C corp, you are not required to 1099 them even if the other requirements are met.
Requesting Form W-9 From Vendors
The trouble comes when you’ve waited ’till close to the deadline for filing. Now you’re scrambling to get the W-9s from all the qualifying vendors. As a bookkeeper and accountant who helps my clients with this process, I’ve come across situations where contractors will get defensive about filing out and transmitting their W-9s as they might feel or believe they’re not required to be 1099’d.
The truth is, they are obligated by law to provide this information if asked. Refusing to provide a form W-9 carries a $50 dollar fine by the IRS. If a vendor is refusing to fill out form W-9, inform them of the penalty by the IRS. Also let them know you’ll still be required to send them a 1099 regardless of if they’ve provided form W-9. From there, the IRS will be aware that the vendor did not provide their W-9. Then you will commence backup withholding from any future payments to them of 24%. The IRS should be following up with them and you from there.
99% of the time when following this process, the vendor will agree to fill out the W-9. Keep in mind that in the rare case you move to the phase of backup withholding, any payments you make out to them will be subject to the 24% withholding. Make sure to keep track of this backup withholding “liability” in your books. You might be remitting this withheld amount to the IRS eventually. If you are unsure about how to do this, be sure to give us a call or schedule a free discovery call with us here.
Contact unresponsive vendors multiple times if they don’t get back to you immediately. At least three times and by different means is a must. Contact them by phone, e-mail, and yes, also mail! Do this before 1099ing them and ticking the box for not providing W-9. Remember that your reputation as a business owner is on the line and you want to make all attempts possible at keeping your contacts list.
Use secure software to request their 1099 info, as this is sensitive and you don’t want to be liable for any security breach. I’ve used Tax 1099 for this and it’s also a great way to transmit 1099s whether it be the 1099-NEC, 1099-MISC, and they also have a variety of other forms if needed. Here’s a link to the Tax 1099 website.