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Backup Withholding, Form W-9, and Refusal of Taxpayer Identification Number

traci-fitting_new-cropHave you received a Form W-9 and wondered “What do I do with this?” It is a question we hear frequently.  The simple answer is, “Fill it out, and save yourself a lot of potential headaches down the road.”

There are certain times when payers of monies are required to fill out and submit information to the IRS. One type of these informational forms is called a 1099, and it reports various pieces of information to the IRS, such as what type of money was paid, who it was paid to, and how much was paid. The IRS uses this form to verify that the recipient is reporting income and the payer is deducting the correct amount on their respective income tax returns.  One example of this would be for prize winnings.  If a person wins $600 or more in prizes or awards in a year, the payer is required to report that person’s name, address, and Identification number, such as their Social Security or Federal ID number on a 1099-MISC.  Failure on the part of the payer to fill out and submit Form 1099 to the IRS when required can result in penalties.

One way for payers to obtain the correct reporting information from the recipients is to give them a Form W-9, Request for Taxpayer Identification Number and Certification. This form is available at www.irs.gov along with instructions. If you are given a Form W-9 and you don’t fill it out and return it to the requester of the information, you could be subject to a $50 penalty.  The requester is then obligated to start backup withholding on any payments they give you.  In other words, for every payment they make to you, they would be required to withhold 28% of the payment and submit it to the IRS.  You would then get credit for the withholding on your income tax return when you file it.  For the payer, it is prudent that the W-9 be given to the recipient before the money is given to them.  Getting a W-9 filled out after payment is already made can be difficult.  People sometimes move or they simply don’t want the IRS to know that they received the money.  If a reporting form is not properly issued to the IRS, it can lead to the loss of a deduction by the payer for the expenditure, as well as potential penalty assessment by the IRS.

The following are some of the types of payments made in the course of a trade or business that would require a Form 1099 to be filed, hence the need to have a W-9 on file for the recipient of the money. Rents of $600 or more; gross royalties of $10 or more; prizes, awards and other payments  of $600 or more; medical and health care payments  of $600 or more made to a physician, supplier, or other provider of medical or health care services; and fees, commissions, and other forms of compensation performed by nonemployees that amounts to $600 or more.

If you would like to discuss the W-9 or if you have specific questions regarding the complex nature of Form1099 reporting, please contact the professionals at Ketel Thorstenson. We are happy to assist you.

Traci Fitting

Traci Fitting

Traci is an EA and Tax Manager with over 20 years’ experience, specializing in business and personal taxes. Traci joined Ketel Thorstenson in 2009, where she developed specialties in advising clients on the advantages and disadvantages of various business structures available and assisting with IRS issues.
Traci Fitting

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