YES, you really need a W-9 from your vendors… NOW!
Now that your small business has gone through the painful process of gathering information for the annual end of the year 1099 process, we are here to offer some guidance to help make it easier when you hit the end of 2018.
Who must you obtain a W-9 from? You should obtain a W-9 from any vendor you pay over $600 in the taxable year for services (including mixed services/materials) or rent/lease payments. Based on how they complete this form, you will determine if they need to have a 1099 issued. Most vendors will need to have a 1099 issued. The only exceptions are:
- Payments to a C-Corp or an S-Corp (an LLC does not automatically fall under this exception) which is not being paid for legal or medical services
- Payments made via credit card, debit card or PayPal
TO BE COMPLIANT
You should obtain a W-9 before issuing any checks to your vendors. If they do not provide you with a W-9, you are required to withhold and submit 28% backup withholding from any payments to the vendor. You can be responsible for this backup withholding even if you do not collect it from your vendor. You should also ask any existing vendors to provide you with a new W-9 each year to confirm their tax classification, tax ID or legal name has not changed.
FAILURE TO COMPLY
This is not a filing that can be ignored. You are required to indicate on your tax return if you were required to file 1099’s and, if so, if all required 1099’s were filed. Penalties for late and/or non-filing are steep. In addition to possibly being responsible for the 28% backup withholding, the IRS can impose the following penalties on your small business if 1099s are filed late (due Jan 31st) or not at all:
1-30 days late: $50 per 1099
31 days late-Aug 1st: $100 per 1099
After Aug 1st-not at all: $260 per 1099
Intentional Disregard: $530 per 1099
Related to your 2017 filings, you may receive a notice from the Treasury Department (Notice CP-2100A) stating that a 1099 which was filed for 2017 by your business had an incorrect name or SSN/EIN. Read the notice carefully; you may not need to respond to this notice, but you will need to follow up with the recipient to verify that you have the correct information on file.
Blank W-9 forms along with other tax forms are available on our website on the Forms and Worksheet page under Common IRS Forms. If you have any questions, we are always happy to help!