We’ve written before about the differences between an employee and independent contractor. What happens though if you’ve determined that someone you’d like to hire actually is an independent contractor but he or she refuses to give you Form W-9?
To recap Form W-9 is the document independent contractors you hire must complete to provide their tax ID number.
There could be a variety of reasons why some people refuse to fill out a W-9 with the most likely wanting to pull an okie doke on the IRS and not report all their earnings. Nevertheless the responsibility remains with you to collect the independent contractor’s Form W-9 before the person starts working. If the independent contractor doesn’t provide you with Form W-9 you must withhold tax from payments to that person. This is referred to as backup withholding and should be withheld at the rate of 24% and then submitted to the IRS.
Form 945 will also need to be filed to report the withheld tax.
The Penalty for Not Providing W-9
If you are in this position it is important to document the request for a completed Form W-9. Then let the person you want to hire know that there are repercussions for refusing to provide a Form W-9. If someone willfully fails to provide their tax ID number the IRS can assess a $50 penalty. False information on Form W-9 that avoids backup withholding is even more punitive with a penalty of $500.
Do I Need to Send Form W-9 to the IRS
A completed Form W-9 should not be sent to the IRS. Instead keep the form for your records. The information from this form is what you will use if you need to file Form 1099-NEC for the year. (If Form 1099-NEC is required it should be issued to the independent contractor, with a copy sent to the IRS, by January 31 of the following year).
If you need to submit Form 1099-NEC but the independent contractor did not provide you with Form W-9 send that person a hard copy of Form 1099-NEC with “refused” written in the recipient’s tax ID box. A copy should also be sent to the IRS.
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