As tax season approaches, it's crucial to ensure that your business is up-to-date with required documentation. Do you know if your business needs to file W-9s or 1099s? Understanding these forms is vital for compliance.
What is a W-9?
A W-9 is used to request the TIN (Taxpayer Identification Number) from a vendor, company, or individual for which non-employee income has been or will be paid during a calendar year.
What is a 1099?
A 1099 is filed annually with the IRS to report nonemployee income paid to the vendor using the information collected on a W-9. The 1099 is required if the vendor, company, or individual receives payment in excess of $600 for services throughout a calendar year.
What happens if I don’t collect a W-9 or file a 1099 with an incorrect tax ID?
You can be fined between $60-$640 per missing W-9. You will need to rectify incorrect 1099s with the vendor and may be subject to backup withholding (which is 24%). You can be subject to IRS penalties if you fail to do this.
IMPORTANT!
Starting in tax year 2023, the IRS requires all businesses with 10 or more 1099s to file electronically.
Examples of penalties:
Pro Tip!
You don’t need to send 1099s to vendors who are incorporated.
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