WARNING: Consequences for Not Obtaining W-9 From Your Contractors!
Audio version available here:
Length: approx. 1 min. 30 sec.
Attention business owners! We are approaching the end of January 2024 and a big part of your business's January deadlines is filing 1099-NECs so you can deduct payments made to contractors. But in order to do so, you need a W-9 with all their taxpayer information. If you hire contractors and are unable to file the 1099-NECs by the due date, you may potentially incur penalties and interests.
The penalty for intentional disregard is $630 per 1099 plus interests. If those payments are claimed as deductions, 24% backup withholding must be remitted to the IRS and Form 945 will need to be filed. Furthermore, if you want to continue hiring these contractors, you must continue to follow the 24% backup withholding rule. This means that out of $100K you would pay to your contractors, $24K would need to be remitted.
What can you do as a business owner before the deadline? First, we recommend you still file the 1099 with “refused” as their tax ID. Then, track down and chase your contractors so you can obtain their W-9 within the next 30 days. Once you have obtained your contractors’ W-9, re-submit their tax ID to the IRS. Doing so will allow you to avoid the $630 penalty.
If you are in a business where you hire many contractors, you need to pay special attention to 1099 filing due to the financial implications it can have on your business if you fail to file these reports by the deadline. For more details, watch our video on this exact situation. If you are in need of assistance, don’t hesitate to reach out to the XQ CPA team. Call us at 832-295-3353. We are here to help you.
Phone: 832-295-3353
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