If you are one of our clients, you’ve probably gotten some questions in our portal about needing W-9 forms from vendors.  I wanted to clarify on some of the rules, so whether you are a client or not, you’ll be prepared for January 31st when 1099s are due.

• What is a W-9? The W-9 is a form you send to a vendor in order to get the major information about their business, like legal business name, address, business structure (sole proprietor vs corporation), and EIN or SSN.  It’s in your best interest to get these from all vendors, but certainly any that you are unsure of the business structure.  Having an LLC after the name unfortunately doesn’t tell you anything because there are different ways that these businesses are taxed.  You can find blank W-9 forms here:  https://www.irs.gov/pub/irs-pdf/fw9.pdf
• What is a 1099?  At its core, a 1099 is a form which a business sends out to a vendor or subcontractor to report their income to the IRS.  There are several different kinds of 1099s, the most common being a 1099-NEC (non-employee compensation).  1099-INT for interest, 1099-MISC with different boxes for things like rent or gross proceeds to attorneys, and many more.
• Who gets a 1099?  Sole proprietors and single member LLCs that report their income as a schedule C on their personal income tax returns.  So, not S or C corporations that have a separate tax return.  This is why LLC after a name doesn’t give you enough information because you need to know if that LLC is taxed as a single member, a partnership or an S-corporation.  It is also only for services provided, not products or advertising placement.  Here are some common examples of vendors that need a 1099:
  • Subcontractors – these are individuals that you pay for services that are not on your payroll.  Keep an eye out for my next blog post about the difference between subcontractors and employees.
  • Professional services – these are individuals or small businesses that perform a service for your business like bookkeeping/accounting, coaching, cleaning services, marketing consultation, etc.
  • Attorneys – all attorneys need to have a 1099 regardless of their business structure.
  • Rent – if you pay rent to an individual or small business, not a larger property management company, they probably need a 1099-MISC.
•  Credit Card exclusion: One of the caveats to this whole thing is that you don’t need to send someone a 1099 if you paid them via credit card.  The credit card company (including Paypal) is required to send them a 1099-K.
• When do I need to get a W9 from a vendor?  The IRS rules are before you pay them anything.  This is the justification the IRS will use if you are unable to get a W9 from them after the fact.
• What do I do if a vendor refuses to fill out a W9?  Unfortunately, this has happened before, there could be many reasons a vendor refuses.  Maybe they are trying to keep this income “under the table”, maybe they just don’t want to give you their EIN or SSN.  You don’t need to know the reasoning, but there are some things you can do to protect your business:  
  • You can still file a 1099 which will need to be on paper because you cannot electronically submit an incomplete 1099.
  • Write “refused” in the TIN box
  • Document at least 3 times that you attempted to get a W9 form from them
  • Begin withholding 24% backup tax from their checks and remit it to the IRS (that’ll probably get their attention)
  • Here’s a great blog that goes into more detail:  https://smallbusiness.chron.com/filing-1099-form-ein-number-4190.html

And, as always, feel free to contact us if you have any questions.  We are here to help!