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This is the time of the year when most of the bookkeepers start receiving panic
emails about pending W-9 forms, missing SSNs or EINs or vendors who just don’t
fill out W-9 forms.
Here are the steps you should take in this situation:
What happens if a vendor or subcontractor refuses to fill out a W-9 form?
There are a few reasons why a vendor or subcontractor might refuse to fill out a Form W-9. You do not need to worry about that person’s reasoning, but you do need to know what to do in this circumstance. Follow these steps:
- Make sure you have requested a Form W-9 from the vendor. Any attempts to request a Form W-9 should be documented in writing. The easiest way to do this is via email. The IRS calls this “solicitations” and requires that you request a Form W-9 using “three solicitations”
- The first request should take place initially upon starting a business relationship.
- The second request, which is called a “first annual solicitation”, should happen by December 31 of the same year in which you started working together (or by January 31 if you just started working together in December of the preceding year).
- The third request, which is called the “second annual solicitation” should happen by December 31 of the next year
- It is also possible that a vendor gives a W-9 but has made a mistake on the W-9,transposing a number generating an error that the IRS notes. Incorrect information on the W-9 generates an IRS Form CP-2100 or CP-2100A, Notice of Incorrect Filing. Document all requests for a current W-9. Ask vendors at least three times. Some vendors have an Employer Identification Number (EIN) or use their personal Social Security Number for income purposes. Either number is acceptable.
- If someone wilfully fails to provide their tax ID number the IRS can assess a $50 penalty. False information on Form W-9 that avoids backup withholding is even more punitive with a penalty of $500.
- In the event of a failure to get a W-9, you must begin backup withholding of 24%immediately. The money that you withhold should be reported on Form 945.If you have paid the vendor or subcontractor at least $600 over the course of the year, then you still need to file a Form 1099 for this payee. This ensures that you are complying with the provisions of the IRS.
- If your business does not file a 1099 for everyone that you should, you may have to pay a penalty ranging from $50 to $270 per unfiled 1099.
- Since you do not have the complete information to fill out a Form 1099 digitally for this vendor, you will need to fill the form manually. This is due to the fact that theIRS won’t let you leave blank spaces on a digital form.
- When preparing the paper Form 1099, make sure you write the word “refused” inthe Tax Identification Number (TIN) box where you would normally put their socialsecurity number or employee identification number.
- Once the Form 1099 is complete, send the vendor and the IRS their copies just likeyou would for anyone else.
Finding yourself in this situation can be headache-inducing to say the least. The solution?
Make sure you get all the information needed up front. You can even use services liketrack1099.com to make the whole process as simple as possible. And if the potential payee refuses to comply…
Simple: don’t work with them.
There are plenty of people out there who’ll happily work with you entirely legally!