As January draws to a close, it's not uncommon for me to receive frantic emails from clients fretting over missing W-9 forms, incomplete social security numbers, or vendors outright refusing to fill out the necessary paperwork.

If you find yourself in this situation, take a deep breath. This article is your guide to navigating these challenges and ensuring compliance.

What to Do When a Vendor Refuses to Fill Out a W-9 Form

There are various reasons why a vendor or subcontractor might balk at completing a Form W-9. While their rationale is not your primary concern, knowing how to address the situation is crucial. Follow these steps:

• Document Your Requests: Ensure you've formally requested a Form W-9 from the vendor. Keep a record of these requests, preferably in writing, such as through email. The IRS recommends three solicitations:

 - The initial request at the onset of your business relationship.

- A follow-up by December 31st of the same year or by January 31st of the following year, depending on when your collaboration began.

- Another reminder by December 31st of the subsequent year.

• Implement Backup Withholding: If a vendor refuses to comply, initiate backup withholding at a rate of 24% immediately. Report the withheld amount on Form 945.
• File Form 1099-NEC: Even if the vendor hasn't provided their information, if you've paid them $600 or more throughout the year, you're still obligated to file a Form 1099-NEC to ensure accurate expense reporting.
• Complete a Paper Form: Since digital forms cannot have blank spaces, manually fill out a paper Form 1099-NEC. In the Tax Identification Number (TIN) box, write "refused" in place of the missing information.
• Distribute Copies: Once completed, send copies of the Form 1099-NEC to the vendor and the IRS as usual.

Handling Missing W-9 Forms

If you've overlooked requesting a W-9 form from someone you've paid, don't panic. Simply reach out and request it now. Most vendors are cooperative and will provide the necessary information promptly. Ensure you gather this data to accurately complete your Form 1099-NEC.

Penalties for Non-Compliance

As a business owner, it's your responsibility to collect W-9 forms from contractors and vendors before commencing work or making payments. Failure to do so can result in penalties ranging from $50 to $270 per unfiled 1099. Timely and accurate filing is key to avoiding these penalties.

Handling Form W-9s

Keep collected W-9 forms secure, as they're not submitted to the IRS. Use the information solely for filling out Form 1099s and refrain from sharing it with others to avoid legal repercussions.

Issuing Form 1099-NEC Without a TIN

If a subcontractor refuses to provide their social security number, complete a paper Form 1099-NEC and write "refused" in the TIN box. Ensure copies are sent to both the vendor and the IRS.

Continuing Business Relations

If you wish to continue working with a vendor who hasn't provided a W-9 or TIN, adhere to IRS guidelines by initiating backup withholdings until the necessary information is provided. Document all communication attempts for your records.

For further guidance on backup withholdings or tax obligations, consider consulting with us, your CPA. By diligently following IRS protocols and accurately reporting earnings, you can mitigate any potential tax-related issues arising from vendors' non-compliance.

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*Disclaimer: This blog post is for informational purposes only and does not constitute professional tax advice. Please consult with a qualified tax professional for personalized guidance.*