It can be a little confusing to understand Subcontractors, W9s and 1099s so here is some help.
Why are W9s and 1099s so important? Here are 5 reasons why you should get a W9 and issue a 1099 to anyone who provides services to your business at any time.
- It’s the law. I recommend getting one from every contractor before you issue them payment. If you don’t happen to pay them more than $600 in the calendar year, no big deal. You just won’t issue them a 1099. However, going back after the fact can cause headaches and issues if they refuse to provide it.
- You can be fined if you fail to issue a 1099 to a contractor.
- It is your responsibility as a business owner/manager to have a signed, legible copy of Form W9 on hand for every person, business or entity that it issues a check to. This includes individuals, sole proprietors and limited liability companies. You do not have to issue a 1099 to a corporation, but you should request a W9 from them so you have proof that they told you they were incorporated.
- You run the risk that the IRS will not allow deductions of actual business expenses because you did not issue a W9. Therefore, that becomes taxable income to your business.
- There is no reason not to acquire this form when you have good business processes in place. I recommend to all my clients to request the form before you ever issue a payment…nothing gets the contractor more motivated than payment to provide you the required legal form. If they won’t provide you a W9, you simply shouldn’t do business with them or issue any payments until you have it.
Here is the most recent form as of the time of this blog: W9 form
1099s should be postmarked no later than Jan 31 of the following year to avoid penalties. Any questions, please feel free to reach out to me.