The Importance of W-9’s
Form W-9, Request for Taxpayer Identification Number and Certification is required to inform the IRS that a taxpayer is not subject to backup withholding and is responsible for paying his or her own taxes. A W-9 is required from a vendor or contract employee. The W-9 will have their correct EIN or SSN for the required 1099 Form to be sent at the end of the year. The payor is required to obtain a W-9 from vendors, contractors, or freelancers per the W-9 and 1099 Rules.
The payor is required to submit the 1099 forms on time as set by the IRS deadline. Failure to file 1099’s timely because a there is a refusal to provide a W-9 does not excuse the business from timely filing and could result in IRS penalties.
To avoid the problem of vendor or contractor refusing to provide their W-9 you must take a proactive approach. When you first hire a contractor, vendor, or freelancer it is always best to have them fill out a W-9 before beginning any work or issuing their first payment.
If there is a refusal the payor must document all attempts showing the request of the W-9. Per the IRS a minimum of 3 attempts are needed to avoid penalties. You should also begin backup withholding immediately on any reportable payments. The backup withholding of 24% will be deposited to the IRS. You will need to file the necessary forms and fill in the TIN field with “refused to provide” or something similar. You will then receive a letter from the IRS with instructions to begin the backup withholding. Comply with all the IRS requests so you do not incur any penalties.
Misuse of TIN’s or SSN’s – If a business misuses or improperly discloses a TIN or SSN on the W-9 this violates federal law, and the company may be subject to civil and criminal penalties.
Not filing the 1099’s timely or filing incorrect Information – Penalty rates vary based on the size of your business and timeframe the incorrect information was received. The fines range between $50 and $530 per 1099.
Refusal to provide W-9 – If a vendor or contractor refuses to provide a W-9 when requested, the Payee is subject to a penalty of $50 for each failure.
The overall advice is to collect the W-9 before any contractor begins work or before they receive their first payment!
Please contact FR8 Solutions for any of your business needs!