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Contractor will not provide EIN or SS# for 1099MISC


Jack from Ohio

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We have a client with a person who did subcontractor type work for her. The contractor refuses to fill out a W-9. I seem to remember a procedure to file the 1099MISC and address this issue to the IRS. Is there an additional form?

We have always recommended that our clients do not hire anyone till after a completed W-9 is on file, but we all know how clients listen to us.

Fortunately, we only have a few (3-4) of these every year. She paid this person about $4,000 so the amount is substantial to her business.

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Your client can file it without the recipient's ID number and it will be considered incomplete, and a penalty may be assessed for filing the incomplete form. I'm not sure it can be e-filed though as I've never tried that.

Also, your client should have withheld taxes at 28% and the IRS can hold your client responsible for that tax.

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I'd send the contractor a 1099-Misc and enter "REFUSED" in the Federal ID number/Soc Sec field. Also include a W-9. If they haven't filled out the W-9 by the end of Feb, may as well send the IRS their copy with the Fed ID/SocSec field blank. The client doesn't have much to lose in this situation - at least they've demonstrated they tried to comply. I think the penalty can be up to $100, but I've never heard of it being imposed, especially for a small number of 1099-Misc forms.

Here's some guidance:

http://www.irs.gov/Individuals/International-Taxpayers/Filing-Forms-W-2-and-1042-S-Without-Payee-TIN's

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I always tell clients "if you do not have a signed W-9 already on file, you must withhold 28% from every payment." Usually, it only takes one such check for them to give you a number. I advise them to remind the sub that if he gets the form back quickly, the withholding can be cancelled, but only up to the point when the 941 is filed.

If they wait till the payment has already been paid to the sub, they have little leverage, but still are required to pay in what should have been withheld. That expensive lesson will usually teach the client a never-forgotten lesson.

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I always tell clients "if you do not have a signed W-9 already on file, you must withhold 28% from every payment." Usually, it only takes one such check for them to give you a number. I advise them to remind the sub that if he gets the form back quickly, the withholding can be cancelled, but only up to the point when the 941 is filed.

If they wait till the payment has already been paid to the sub, they have little leverage, but still are required to pay in what should have been withheld. That expensive lesson will usually teach the client a never-forgotten lesson.

So if they pay in the 28% they should have withheld on the contractor's behalf, do you gross up the 1099 to show more income than they actually received and the tax "withheld?" That seems logical...

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So if they pay in the 28% they should have withheld on the contractor's behalf, do you gross up the 1099 to show more income than they actually received and the tax "withheld?" That seems logical...

If you gross it up, wouldn't you have to pay the tax to the IRS, so if you grossed up $1000, using 28%, it would cost you $$1388.89 ($1000 to the contractor and $388.89 to the IRS)?

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If you gross it up, wouldn't you have to pay the tax to the IRS, so if you grossed up $1000, using 28%, it would cost you $$1388.89 ($1000 to the contractor and $388.89 to the IRS)?

Yes, but if you are liable for the 28% tax anyway, and are going to pay it anyway, as KC pointed out in her post, that means that effectively you have paid the contractor both his fee and the tax you sent to the IRS. So wouldn't the 1099 reflect that?

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I would not, and COULD not recommend to a client that they after the fact, send in 28% withholding on a 1099 guy.

Sorry. Not going to happen.

Have the Taxpayer do the reasonable steps to get the SSN/Address/Name of the 1099 guy before Feb 28th, and then send in the 1099's with the info that you have, and then respond to the IRS notice if it ever comes.

Withholding 28% from a check you are about to mail someone for services rendered? Ok. I am good with that. But I would not do it after the fact. The guy got $1,000, send a 1099 for $1,000.

Rich

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I too would never have my client lay out the 28% withholding.

the problem mostly occurs when you hire a contractor and only pay him a few hundred dollars, thus no 1099 anticipated. Then months later you pay him hundreds more, now needed a 1099. Most clients don't tract this during the year and don't discover the need for a 1099 till we tell them.

its hard to get the pizza shop or locksmith etc to set up proceedures to get W-9 info on everyone they pay.

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<<its hard to get the pizza shop or locksmith etc to set up proceedures to get W-9 info on everyone they pay. >>

However, that is the requirement by the government. We require all vendors to submit a W9 before they can get paid. We just don't cut the check without a W9 on file. If they want to sue us for non-payment, then they can go into a courtroom and explain to a judge that they don't want to get a 1099 at the end of the year.

Tom

Hollister, CA

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Works great for your own business, but harder to make clients do it that way. That is why I gave all my business clients a basic 'form letter' that I urged them to use with every sub, on the first check, informing them that unless or until they returned the enclosed W-9, filled out and signed, they would have 28% withheld from every check.

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Have any of you ever seen the notice from you IRS about misreporting ss# on a form 1099? If not mistaken they give a pass for year one but if in yr 2 you pay same person you have to withhold the 28% or be subject to penalty. If audited and no 1099 was issued the auditor will request one be filed/provided to them at that time or at least that was the experiencence I had.

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Can we educate the contractor who doesn't provide his info or can we educate your client? Tell them that they are not entitled to any deduction because they didn't follow procedures. Show them how much they would have saved if before writing that check they had asked for that info.

This happens sometimes, they have a proposal from three companies, two of them that are established companies that will provide that information by default (pre-set condition). And then you have one that will do the job for less but will not provide that info easily. So your client takes this offer and sometimes they even tell them that they will not issue them a 1099. When they come to you, they tell you that the "guy doesn't want to provide that info". Most of the time, your client didn't call you to make sure what s/he is supposed to do until the following year when you are ready to prepare their taxes, which is too late.

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Tell them the alternative is to not deduct the expense, and they will realize that 'doing the sub a favor' is too expensive. If you tell the client that you are required to answer a question ON THE TAX FORM that they have filed all required 1099's, and that answering it 'no' will FLAG their return, they will usually get you the info to file the 1099. At worst, you file the 1099 with REFUSED in the space for the SSN/EIN.

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Tell them the alternative is to not deduct the expense, and they will realize that 'doing the sub a favor' is too expensive. If you tell the client that you are required to answer a question ON THE TAX FORM that they have filed all required 1099's, and that answering it 'no' will FLAG their return, they will usually get you the info to file the 1099. At worst, you file the 1099 with REFUSED in the space for the SSN/EIN.

the thing is what do you answer when they pay 15 people and 14 of them are correctly reported, then the answers could be yes but a mistake was made?

I would of course deduct the expense anyway, the issue of erroneously [clients argument] that a 1099 was omitted is still a good argument, you pay the $50 penalty and that is it. But to be found it goes like this, the client has to get audited, the agent has to pick up that expense, and then has to ask for the 1099's. Not to say it couldn't happen but in 31 years I only was asked to produce the 1099's once on audit. Workers comp is a bigger pain since they always ask for them.

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Workers comp is a bigger pain since they always ask for them.

I agree the IRS is not much to worry about. Even with a 1099 the business can demonstrate a deductible expense. But if they don't treat the worker as an independent contractor, it might look like an employee relationship. And if somebody gets (or pretends to be) hurt, the business could be ruined.

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I have a client who was horrible about not getting W-9s from contractors, and no matter what I said they kept writing checks.

I changed their QuickBooks vendor "check payable" line to print, "No more checks until TIN obtained!"

Got a call from them the next week when they went to print out yet another check to that vendor.... the office manager didn't know how to change it back (tee hee). She learned, and started getting W-9s from everyone. Mostly. We still occasionally find missing TINs from (for example) a new plumber called in once in January and then again much later in the year.

If fewer than 25% of the 1099s have a missing TIN, you can still e-file the 1099s. Tell the client to expect letters from the IRS on all the missing TINs. Frequently that warning is enough to get them to hunt down the contractors. If not, telling them they must immediately start backup withholding of 28% usually kicks their behinds. They do NOT want to do that work, argue with the contractor about "underpayments" and quickly decide getting the W-9 is easiest, fastest, safest for them.

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Michaelmars, you may have had an IRS agent request a 1099MISC once in 31 years, but state Labor Department officials are requesting them 31 times in 31 audits. Most states are in the hole to the federal government for overages in unemployment insurance and are desperate to classify independent contractors as employees to add a little more to their SUTA account. We must have at least two labor dept audits of clients per month.

This week a labor dept auditor of one of our clients questioned a $1000 payment to an office cleaning service. We admitted that we were at fault for not issuing a 1099, but geez it was a company that cleans lots of offices at night and clearly a subcontractor. The auditor insisted on an invoice from the service, even after we pointed out that even with the maximum 6.8% SUTA tax rate the most the state would collect would be $6.80!

With this experience, this year we are being very diligent about issuing 1099s to ourselves for tax and accounting services.

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I agree that the states are going crazy and said so referencing workers comp, had a CT state labor audit on a dental practice where there report assessed on patient refunds. Just because they assess doesn't mean they are right. There policy is to assess for every payment and make you fight them. As for the cleaning service, we too were asked who directs them and whose supplies and vacume to they use. DOL wanted to make them w-2. It doesn't matter if you 1099 a contractor, the State will still insist they should be employees. They want the sui on them.

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I had one of these audits(sui). Thay insisted that unless the contractor has their own license etc we must include them on Unemployment reports. This of course then will NOT match our 941(etc). They responded no problem as long as they were subs. Your mileage may be different. Just what I discovered.

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