What Happens If I Don’t Have a W9 Form from someone I paid money?

A W-9 form is essential for reporting vendor payments to the IRS. Ensure vendors complete the form promptly. Using accounting software can help manage and secure sensitive vendor information.

By Brad Nakase, Attorney

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Have a quick question? I answered nearly 1500 FAQs.

Introduction

At the end of January, there is often a mass panic about W-9 forms, whether it’s due to missing forms or vendors who refuse to fill them out. However, there’s no need to worry. Here are some frequently asked questions about W-9 forms to set the record straight. Understanding these can help ease the anxiety surrounding tax season.

What Do I Do If My Subcontractor or Vendor Refuses to Fill Out a W-9 Form?

The reasoning behind a subcontractor or vendor’s refusal to fill out a W-9 form is irrelevant. Focus on the necessary steps to take:

1. Make sure you have written evidence of your attempts to get a W-9 form from the vendor. Email is perfectly acceptable. The IRS requires you to have requested it at least three times as follows:

  • The first “solicitation” is when you first start the business relationship.
  • The second solicitation is on December 31 of the year you started working together. If you began in December, then by January 31.
  • The third solicitation is to be made by December 31 of the following year.

2. Withhold 24% as a backup immediately and report the withheld money on form 945.

3. If you paid the subcontractor or vendor over $600 in a calendar year, file Form 1099-MISC for the payee. Fill out the paper form as the digital form does not allow for blank spaces. In the Tax Identification Number (TIN) box, put “refused” where the SSN would usually go. Send copies of the form 1099-MISC to both the IRS and the vendor.

Related: What are employer payroll taxes?

What Happens If I Forgot to Ask For a W-9 Form?

If you realize during tax time that you forgot to ask for a W-9 form, simply contact your vendor and request them to fill one out. Most vendors will be happy to help. Collect the information and complete a form 1099-MISC for this vendor.

Is There a Penalty If You Don’t Have a W-9 Form for a Vendor?

It’s the business owner’s responsibility to have a W-9 form for all contractors and vendors. Ideally, you should receive a W-9 before any work or payment happens. However, if you do not have a W-9, you need to correctly complete and file a 1099-MISC form for each vendor before tax time.

Failing to provide a 1099-MISC for every vendor and subcontractor can result in penalties ranging from $50 to $270 for each missing form.

If you’re a contractor, vendor, or payee and fail to fill out a W-9 form, you might attract IRS penalties.

What Do I Do With W-9 Forms?

W-9 forms should be kept in a safe place. You need them to fill out a 1099 Form for each payee. The form’s sole purpose is to provide the information needed to complete tax filings, and the information must be kept confidential.

If I Don’t Have an EIN or SSN, How Do I Fill Out a 1099-MISC Form?

If the vendor or subcontractor doesn’t provide the required information, you can fill out a paper form. Unlike digital forms, paper forms allow free-form answers or blank spaces. In the TIN box, write “refused” to inform the IRS that the vendor did not give the information.

Can I Keep Working With a Vendor or Subcontractor If They Don’t Give Me a W-9 or TIN?

The IRS requires you to request a W-9 form in writing from the vendor at least three times. If the vendor still doesn’t provide a TIN, withhold 24% of the amount you pay them until you receive the TIN. Following these steps will protect you from IRS penalties.

What is a W-9 Form?

A W-9 form is crucial for taxpayer identification and certification. This form is required from individuals and entities such as single-member LLCs, independent contractors, freelancers, C-corporations, and vendors when they first start working with a company.

The form, though simple and one-page long, is crucial. It requires providing details like name, address, tax classification, individual taxpayer identification number (ITIN), social security number (SSN), and withholding tax requirements.

The person completing the form must sign it to certify the information provided is accurate. If the vendor operates under a business name or trade name, the business contact information must also be supplied. This ensures that all relevant details are available for the business to report to the IRS accurately.

What is the Purpose of a W-9 Form?

The W-9 form serves to create a formal record of the business relationship between the company and the individual or entity providing services. When businesses make reportable payments, having the correct taxpayer information is essential.

This form ensures that the hiring company has the necessary information to file forms 1099 when the time comes. This filing typically occurs at the end of the tax year and helps ensure compliance with IRS regulations.

For instance, if Nakase Law Firm hires a freelance writer, the completed W-9 form ensures the firm knows how to report the payments made to the writer to the IRS. This process helps in maintaining transparency and adhering to tax laws.

Why Do Companies Need a W-9?

Understanding why a W-9 form is crucial for businesses is straightforward. Every business needs to collect a W-9 form from each vendor it engages with.

However, why might a vendor need to get this information from you? Generally, this scenario arises if you are buying goods and reselling them for a commission.

For example, if you sell products for companies like Tupperware or Avon, they might request a W-9 from you. In these instances, the companies are paying you a commission and need your taxpayer information to report these payments to the IRS.

This requirement becomes relevant if you purchase more than $5,000 worth of goods for resale. If your sales are minimal, such as selling a few items occasionally, you may not need to provide a W-9. However, if you engage in more substantial transactions, the W-9 becomes necessary to ensure proper tax reporting.

Be Wary of Handing Sensitive Information

Every vendor should provide a W-9 to the hiring company, but it is crucial for the hiring company to keep this information secure. Using cloud-based accounting software can be an effective way to ensure that sensitive information is protected.

This software typically includes security features such as password protection, encryption, and secure storage. These measures help keep sensitive data safe from unauthorized access or breaches.

This approach not only protects the information but also makes it easier to access and manage when needed, reducing the risk of data loss or misplacement.

Do I Need to Get a W-9 from My Vendors?

Yes, it is essential to obtain a W-9 form from vendors and independent contractors in any business relationship where you are the payor. Even vendors who are exempt from backup withholding must fill out a W-9 form.

They simply need to enter an exempt payee code, which provides a record of the vendor relationship without requiring additional information. This practice ensures that the business has all the necessary information when it’s time to file 1099 forms with the IRS.

Even if the consultant is exempt from backup withholding, the form ensures the law firm has the information needed to comply with tax reporting requirements. This process also helps the consultant receive the correct forms to file their individual taxes.

Importance of Accounting Software for W9 and 1099

Implementing accounting software into your business processes can significantly reduce the workload and stress associated with managing various business operations. This software helps keep track of important forms like the W-9, ensuring they are not misplaced and are readily available during tax return season.

This approach streamlines the process of collecting and storing these forms, making it easier to comply with tax regulations and reducing the risk of errors or oversights. Additionally, accounting software can automate many of the tasks involved in managing vendor relationships, such as tracking payments, generating reports, and filing necessary forms with the IRS.

Do I Ever Need to Get a New W-9?

In most cases, you can use the same W-9 form from year to year. However, certain changes might necessitate a new form. For instance, if an independent contractor or corporate vendor undergoes significant changes, a new W-9 might be required.

This could happen if a sole proprietor forms an LLC, a company changes its business address, or a vendor spins off from another company and receives a new Taxpayer Identification Number (TIN). Keeping updated W-9 forms ensures that businesses

have accurate and current information for tax reporting purposes. For example, if Nakase Law Firm hires a contractor who later forms an LLC, the firm would need an updated W-9 form to reflect the new business structure and TIN.

Conclusion

A W-9 form is necessary when a business pays a freelancer, independent contractor, or self-employed worker $600 or more in a year. The form creates an official record of the business relationship and contains the vendor’s taxpayer identification information.

This information is crucial for creating a 1099-MISC and filing taxes during tax season. Ensuring that all vendors and contractors complete a W-9 form helps businesses comply with IRS regulations and avoid potential penalties.

For more information and guidance on tax-related topics, check out our taxes category. Nakase Law Firm is committed to helping business leaders succeed by providing valuable advice and resources on various aspects of running a business.

Have a quick question? We answered nearly 2000 FAQs.

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