With tax filing season kicking into high gear, we thought it would be a good idea to review some of the most pressing questions we see coming through from small businesses this time of year. For this post we are looking more closely at what to do if a contractor refuses to send you a W-9.
The gig economy and freelancing was booming in 2020 as a global pandemic shifted many online and hiring contractors with unique skill sets became the norm. If you paid a non-employee for services or goods this year, you’ll need to report this to the IRS when filing your taxes. To do so, you’ll need some important information from that contractor – such as their social security number or Tax ID (TIN) and other basic filing info. With this data (also referred to as “Request for Taxpayer Identification”) you will then provide a 1099 form to the contractor that officially states what was paid out to them for the year.
Keep in mind, there are many different types of 1099 forms based on the income earned so be sure you’re using the correct form when sending to any contractor.
Here’s what to do when there is a contractor or vendor you realize has not sent you their W-9 information or is refusing to provide one.
First things first, don’t panic. Even if it’s time to file your taxes and you realize you paid someone over the $600 threshold and never initially asked them to fill out a W-9, most people are happy to fill one out upon request. So the first step is always to ask for one.
If you’re just getting started doing business with a contractor, it’s great to get this information from the start. You can do so by soliciting them to fill one out. The IRS advises that 3 attempts to collect this information be made. Once when you initially begin your working relationship, another before the end of that calendar year you worked together and then a third, before the end of the following year.
The standard practice during tax filings is to fill out a 1099 form for these contractors using the data provided in their W-9. This is true for anyone you do business with in the year who you pay over $600. Failing to report this can lead to penalties and fines.
If you have someone that has not completed their W-9, you should still plan to set aside the necessary withholding and report the expenses accordingly for your records.
When filling out the 1099 without necessary information, you’ll need to use the paper filing format for the IRS as digital versions will not allow for blank boxes. In those spaces where you are missing information (social security + TIN) you will need to write “REFUSED” and submit a copy as you normally would to the IRS and the contractor.
Remember: As the business owner, it is your responsibility first to request this information from anyone you choose to hire for business. Be sure to have all of the data you need before agreeing to move forward in the business relationship to avoid any possible issues when filing.