1099s and W-9s, oh my!! (Part 2)

Last week, we discussed 1099 forms. This week, we continue on this important topic by focusing on the W-9 form.

You may recall from my previous post that the third criteria to determining if a vendor needs to get a 1099 form is that they are not taxed as a corporation. You may ask yourself, “How would I know that?” The answer is that you need to get a W-9 form! 

Before we dig into the W-9, let me say this: don’t be fooled. Even if an individual has a business name, they aren’t necessarily a corporation. Also, an LLC is not (necessarily) taxed as a corporation.

Many business owners get this wrong; they think that LLC stands for “limited liability corporation” but it really stands for “limited liability company”. While the LLC designation gives the business an umbrella of protection similar to a corporation, an LLC may be taxed as a sole proprietorship, a partnership, OR a corporation. The only way to know for sure is to have the vendor (whether you are paying an individual or a company name) fill out a Form W-9.

Best practice is to get that W-9 form before they start working for you. If they’ve already started working for you, then the next best time to snag that form is before issuing your first check to the vendor.  If you’ve already issued the payment to the vendor and you still don’t have W9 in hand, then the best time to get that form is NOW!

OK…so what is a W-9?

A W-9 is a Request for Taxpayer Identification Number.  You will want to get this form from anyone (individual or company) who provides services to your organization.

The easiest and best way to find this form is to Google it or click HERE.  Be careful, there will be plenty of sites that have the W-9 form, but some of them will want you to pay for it. This form is available completely free of charge directly from the IRS. As of this training, the most recent W-9 form was revised in October 2018. This form is 6 pages long, but you really only need to collect page 1 from your vendor.

The W-9 form is important because it tells you how to setup (and ultimately pay) your vendor in QuickBooks.

Let’s look at the W-9 form.

Every line of this form is important, so do not accept an incomplete form, including the form being signed and dated!

• Starting at the top, Line 1 is the vendor’s name, as it appears on that person’s tax return.

• Line 2 is the name of the business (if applicable).

• Section 3 is the most important part of this form!  If the vendor marks Individual/Sole Proprietor, Partnership, or LLC and puts a P on that line, then that person MUST get a 1099 if you pay them $600 or more.

• If the vendor marks C Corporation, S Corporation, or they’ve entered a “C” or  “S” on the LLC line, then you are not required to send them a 1099.

• Of course, you need a complete address on lines 5 & 6.

Part I is important because this is where your vendor will give you their Social Security Number OR an Employer Identification Number – which is the whole purpose of this form. 

If your vendor enters a Social Security Number, then your payments, and ultimately the form 1099, will need to show the INDIVIDUAL’s name.

If they enter an Employer Identification Number, then your payments, and ultimately the form 1099, will show the name of a COMPANY.

This is important because it determines how you set up your vendor in QuickBooks.

Part 2 (their signature & date) is important because this is where they are certifying that the information they’ve given to you is correct and that they are not subject to backup withholding.

Backup withholding is a messy thing to deal with and is beyond the scope of this post. You can read about it on page 2 of the W-9 instructions.

By the way, if your vendor refuses to give you a W-9 form, they automatically trigger backup withholding.  My recommendation is that you do not work with vendors who will not provide a W-9 form.

Once you have a complete W-9 form in hand, you’re ready to setup your vendor in QuickBooks.

You may be asking yourself, “What is the big deal? Why is Barbara so emphatic about this?” That is a fair question. I’ll give you three very good reasons:

1. It’s the law. By the way, churches are not exempt from this requirement.

2. The penalties are stiff: as much as $550 per 1099 with no limit on the amount you are assessed.

3. You don’t want to cause others to stumble, including your vendor, when they file their tax returns.

Let me know if you have any questions about Form W-9 or 1099. I love helping others succeed by running their business “by the numbers”.

Barbara