“What do I do about a vendor who won’t give me his taxpayer ID?” We hear that question a lot. You could:
- Not pay them until you get it. This translates to “don’t hire someone until they complete the paperwork.”
- Begin backup withholding until they provide the TIN. This is what the IRS says you have to do. That doesn’t help, though, when you have already made the payment and need to file your 1099-MISC for the vendor. You need to collect a W-9 so you file the 1099 with accurate information.
W-9 Basics
The W-9 is a standard IRS form. The form allows payers to collect information they need to file a return showing a payment made. It asks for your vendors’ TIN, name, entity type, address, and a few other pieces of info. But it’s the TIN that some payees don’t want to provide.
Why not? There are a lot of reasons:
Reasonable: “I can’t remember my EIN but will get it and complete this tomorrow”
Illegal: “I opted out of paying taxes. There is no need for me to give that to you, because I don’t want you to report my income to the IRS”.
Ultimately, though, the IRS holds the payer responsible for collecting the information. Backup withholding is their way to ensure compliance. If not compliance, backup withholding functions to collect income tax. The payer may also incur penalties for not collecting the information.
On the bright side, there is no expiration date on the W-9 form. Collecting once (assuming the information is valid) is all you need to do.
W-9 Collection
Many businesses use the standard IRS form to collect the data. They store it in their office, or scan it to store electronically. We have quite a few clients who use the W-9 e-solicitation tool in Tax1099.com. It allows you to send an e-mail to a vendor, who completes the W-9 online. The updated information is sent to your Tax1099.com account. The vendor electronically signs the PDF.
Close the Loop
Now you have to get the information back to your accounting software. That “closes the loop” to ensure you have the same information in both systems. We recently developed a method to close the loop without having to perform dual entry. From the “Manage Recipient” page in Tax1099, you can select vendor records. The records can sync with to your accounting software. This feature is currently available in QuickBooks Online, Xero, and Bill.com. The sync will also send the PDF copy to attach to the vendor record in the accounting software.
File with Confidence
Collecting the W-9 and closing the loop allows you to have the same information in each system. You also have the PDF copy in case you need to show it to the IRS at some point. Don’t forget to perform a TIN Match on the data the vendor supplies as well. Errors can happen when small businesses have to match their TIN with their name. Some small businesses have a “doing business as” name. Best practice: collect the W-9 before paying the vendor. Then, validate the information with a TIN match. There is no sense receiving an IRS penalty over a missing TIN.