Before we dive into who needs to deal with W9 and 1099 forms, let's first cover what they are:
Form W9, aka the Request for Taxpayer Identification Number and Certification, is a form you have your subcontractors fill out so that you can later report the money you paid to them to the IRS. It's more or less just asking for their name, address, and SSN (or EIN).
By January 31, you should fill out a 1099-MISC form for each subcontractor that you hired during the previous calendar year. You'll use the information on the W9 to fill out the 1099-MISC and then add in how much you paid the contractor. A copy is then sent to the IRS and to the subcontractor.
In short, it's a way for the IRS to know how much subcontractors get paid for their work during the year so the IRS can make sure the subcontractor is paying taxes on their income.
The process is SUCH a pain - for EVERYONE involved:
- If I'm on the hiring end, I'm likely to forget to ask for the W9. Then I have to scramble at the end of the year to send them out and only like 20% of people send them back (... then I have to pay a service to fill out the 1099s and send them off!)
- If I'm the one being hired, it's just annoying to fill out the form. I normally have maybe a dozen people bombing me with them in December and January.
But here's the good news...
Not EVERY subcontractor needs the W9/1099-MISC treatment!
So who needs one?
Most people think that if you paid someone at least $600 for services, you need a W9 from them and you need to issue a 1099-MISC for them at the end of the year.
This is true.. but here are 4 exceptions that you may not know about!
1. LLCs that have taken the S-Corp election Yup. If you hire an LLC that has taken the S-Corp election, you don't need worry with W9s and 1099-MISC forms for that vendor. If you operate as an LLC with the S-Corp election, you don't need to submit W9s to those that hire you and they don't need to send 1099-MISCs for you.
2. Payments made to nonprofits need not be reported on 1099-MISC.
3. Vendors paid by credit card or PayPal: If you hired a vendor and paid them via credit card or a third-party network transaction (like PayPal, UpWork, etc.) you do NOT need to deal with W9s and 1099-MISC for them.
4. Payments to informants: Payments to an informer as an award, fee, or reward for information related to criminal activity doesn't need to be reported on a 1099-MISC under most conditions. (Sorry, I had to include this on the list!).
This is not an all-inclusive list of exceptions and there ARE some nuances for certain payments for things like legal work, property management, and others. So make sure you consult with your tax professional about the specifics on your situation.
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