Backup Withholding for Form 1099
Form W-9 and the "B Notice" Explained
When you pay someone to provide a service to your company, you are often required to send him/her a Form 1099 at the end of the year. The Form 1099 shows the amount paid, and his name, address, and tax i.d. number, which can be a social security number or a business i.d. number.
I recommend getting this information, in writing,
before you cut the first check. You don't want to
be asking for this information at the last minute
before the Form 1099 deadline.
The IRS recommends having your payee fill out and
sign a Form W-9, but as long as he gives you the
information in writing, with a signature, you are okay.
So what if you sent Form 1099 to all of your payees, and now you've received a notice from the IRS saying that some of the information is wrong? Here's what to do: The IRS letter shows a list of the payees with problems.
Give everyone on the list a Form W-9 and a B Notice. Then,
1. If the payee never gave you his information, you must
immediately start withholding 28% of any payments you
give him. When he gives you a signed Form W-9
showing his information, you can stop withholding
from his payments.
2. If the IRS is saying that the Form 1099 name & i.d. number don't match, the payee has 30 days to give you his correct information, or you must start backup withholding.
What's interesting is that the IRS does not ask you to file corrected Forms 1099 after you receive the new information.
There are additional rules if you've received a notice about the same person twice, or you are paying someone who is a nonresident alient. In those cases, or if you just have questions about the information above, you need to enlist the tax services of an experienced CPA.
Bess Kane, CPA
bess@besskanecpa.com
October, 2011
Form W-9
"B Notice"
Burlingame - San Mateo - Foster City CPA Since '88
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