All businesses, no matter the size, are subject to the 1099-MISC filing requirements. In order to be prepared at year-end to timely file any Forms 1099 that are required, you must obtain complete & accurate W-9 forms annually from any vendor you pay $600 or more for services (including mixed services/materials) or rent/lease.
For a simple task, this is very complicated and errors can cause a multitude of problems for you and your vendors!
In order to have the information needed to prepare these forms you need to obtain a completed Form W-9 from your vendors before issuing any checks.
Review the W-9 to ensure it has been correctly completed. Items to review are:
- The vendor must check one of the boxes in Section 3.
- If they check the Limited liability company box, then they must enter a tax classification code to the right of the box.
- If they select the Individual/sole proprietor or single-member LLC box, they are required to provide their name and social security number that they use on the page 1 of their Form 1040 not the business name and EIN. They may list business name on line 2.
- They must sign and date the form.
Based on how your vendor completes this form, you can determine if they need to have a 1099 issued. Most vendors willneed 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.
If you use QuickBooks, we recommend the W-9 be attached to each vendor profile. If we prepare your
1099 Forms for your business, please provide us with copies of all completed W-9 forms as you receive them so we can review and to have on hand to expedite the preparation of your 1099s at year-end.
- If your vendor refuses to provide a complete W-9, you are required to withhold and submit 24% 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. Additionally, the IRS may assess penalties ranging from $50-$530 per 1099 for failure to timely file.
- Related to your 2018 filings, you may receive a notice from the Treasury Department (Notice CP-2100A) stating that a 1099 that was filed for 2018 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 do need to follow up with the recipient to verify that you have the correct information on file.
Before issuing any checks to vendors as a good business practice we recommend that you obtain a fully completed W-9 before issuing any checks.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!