What if a Contractor Refuses to Inform their TIN on a W9

If your business has hired an individual contractor or a contractor firm for services or goods the cost of which exceeds $600, you are obliged to report such payment on the IRS 1099-MISC form.

The 1099-MISC provides the payee’s tax identification number to enable the IRS to doublecheck payments and income reported by the contractor. It is illegal to file the 1099-MISC without indicating the taxpayer identification number of the contracted vendor. If the party refuses to file their W-9 form indicating TIN, some other steps to take are at your disposal.

How do TINs relate to W-9 forms?

The IRS Regulations provide that a business entity that paid any vendor for goods or a contractor firm for services $600 or more during a year must fill out a 1099-MISC form for each of such contracted parties. The completed form 1099-MISC must bear a taxpayer identification number, the only appropriate and regular way to get it is to ask the contractor to file their W-9 form. The free fillable w 9 form provides the following details:

  • The contractor’s full (business) name;
  • The legal address;
  • The tax identification number/TIN (if the contractor is an individual, this number is their SSN; if the contractor is a business entity, their EIN (employer identification number) stands for a TIN).
  • The IRS can regard the contractor's refusal to supply their TIN as infringement. Thus, the agency is likely to conduct a scrutiny of the contractor’s financial transactions.

    Backup Withholding

    If you really faced a problem with a contractor reluctant to send you their W-9, the IRS requires you to start backup withholding on any payments, at the rate of 28% regardless of the amount of the total payment. The IRS will also expect you to turn over any withheld amount to them too. If the IRS demands backup withholding, you will receive a notification on Form CP2100. If case the provided TIN is incorrect, the IRS will also send a notification after receiving the corresponding 1099-MISC copy and verifying the number with the payee.

    Exceptions

    If you have filed Form 1099-MISC based on the supplied W-9 of your contractor, but the IRS figured out that the provided information is incorrect or faulty, they will furnish you with the notification on Form 2100. It will state that the payee is officially subject to backup withholding and you will have to submit another W-9 request and a B notice. It is also not uncommon when the contractor has already applied for a TIN but not yet received it. In this case, they are required to submit an "awaiting-TIN” certificate.

    Another case is that the contractor is a tax-exempt organization. The corresponding certification of backup withholding exemption then must be provided.

    Exempt Organizations

    There are entities that do not have to report their TIN on a blank w9 due to exemptions; they are: federal and state governments, foreign governments, and foreign persons and organizations.

    Besides, some payments are exempt from reporting and correspondingly backup withholding, such as foreclosure proceeds, distributions from pensions, unemployment compensation, state tax refunds, cancelled debts and fish purchased for cash.

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