A client recently told me they couldn’t get a W-9 from a plumbing contractor that they had worked for it. They asked him for it and after the fact that he wouldn’t give it to them. He told them he refused to give them the information. I told him that you need to collect the W-9 before you make a payment that eliminates all of the problems. And he said that most of the contractors he talked to said they would charge him more if he collected the W-9 and gave him 1099.
Yes, that is true, they probably will charge you more. But let’s think about who you’re dealing with here and decide if that’s really the right way to go. It’s cheaper really a better deal in that situation? If you have a contractor who holds that hostage like that, are they going to be willing to fix problem areas?
Are they going to be your best source? Long-term? I suggest not, if they’re cheating in line to the IRS, are they really going to be telling you the truth? No, they’re probably going to cheat in line with you too. If they’re not afraid of the IRS, what is it that you are going to do to them? That would make them, you’re right, so I’d suggest setting up a process in place.
We’ve suggested this many times, and many of you are hesitant about this, but I want you to think about a process going forward. As you began to work with contractors or any subcontractor situation collect the W-9 before they begin to do the work when they quote your price. Say yes okay there you go, I need you to fill out this W-9 and we’ll get you set up in our system so that we can pay you promptly when the work is complete.
If you take that stage and approach, you’re telling the contractor, hey, I am an honest business person and I’m trying to do right by you make sure that you get paid on time and there are no problems with the payment. If that contractor tells you, then they will not fill out to W-9, say okay, walk away and find another.
I know that’s a hard thing to do these days because it is very difficult to find workers, but do you really want to work with people who are cheating on their taxes and cheating the IRS? They’re going to cheat you too. So don’t do it. Just take the information and walk away if that’s the case, when you get the W-9 upfront, make sure that if you are paying that person, that you pay them with the same name.
So if the W-9 says their personal name, but they’re telling you their company is ABC contracting, write out the check to whoever is listed on the W-9. So that information matches and there are no questions if they give you a W-9 and it says business name on it, write the check to the business name and not to their personal name. You want to make sure that you’re collecting the matching information so that you don’t have any problems going down the line in the future. If you have a business name on the W-9, make sure it’s a federal ID number that is listed and not a social security number.
Again, vice versa if it’s a name they can have a federal ID number if it’s a personal name listed as well. So that part is okay, but you’re going to get a mismatch from the IRS if you submit a name of a business and put a personal social security number with it.
So take these tips and I hope this helps. If somebody does refuse to sign the W-9 or give you the W-9, by law you’re required to withhold 24% backup withholding and submitted to the IRS before you issue their payment. Nobody likes that, we don’t want to have to go through that trouble, but let’s not.
Let’s keep it above board. Keep you on the right track, not fighting battles with the IRS that you don’t mean to.
I’m Donna Bordeaux from SweetToothCPA.com. Please follow us on Facebook, Instagram, and LinkedIn. Make sure you check out our blog and our website from the link below, subscribe to our YouTube channel, and hit the bell to be notified when we post. To contact me, email me at firstname.lastname@example.org.
Donna Bordeaux, CPA with Sweet Tooth CPA
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