What to Do When a Contractor Refuses to Provide a SSN for Your 1099s

As a business owner or independent contractor, you may need to issue a 1099 Form to your contractors. However, what do you do if a contractor refuses to provide their Social Security Number (SSN)? This issue can lead to complications and potential penalties. In this article, we will guide you through the proper steps to handle this situation effectively.

Understanding the 1099 Form and Its Requirements

A 1099 Form is used by the Internal Revenue Service (IRS) to report non-employee compensation for services. When you make payments to a contractor, you are required to provide their identifying information, typically their SSN. If a contractor refuses to provide their SSN, it can result in financial and administrative burdens.

Steps to Take When a Contractor Refuses to Provide a SSN

1. Request Accurate and Complete Information: Before engaging any contractor, always request their identifying information, including an appropriate identification number such as a Social Security Number (SSN) or an Employer Identification Number (EIN). Keeping accurate records can prevent future issues.

2. Issue the 1099 Form: If you have already paid the contractor and provided them with the 1099 Form, but they refuse to provide their SSN, you must still send the form to the IRS. Simply include their name and address, as well as a statement indicating that their identifying information is missing.

3. Expect a “B Notice” from the IRS: Around September, you will likely receive a “B Notice” from the IRS. This notice will list the 1099 forms that lacked or mismatched identifying information. The IRS will send you a letter with instructions on how to proceed, typically including the requirement to withhold taxes from the contractor's payment.

4. Send a Letter to the Contractor: The IRS may provide a letter that you can send to the contractor, requesting them to provide their identifying information. If they do not comply, you may have to withhold taxes at a certain rate, as mentioned in the original article. For historical context, withholding at 25% used to be the standard rate.

5. Encourage the Provision of the W-9 Form: The W-9 form is the proper way to provide the required identifying information. You can inform the contractor that you will need this form for future payments and services. Make sure they understand the importance of accurately completing it.

6. Documentation and Record-Keeping: Always keep thorough and accurate records of all communications, forms, and submissions. This documentation will be essential if you need to prove your compliance with IRS regulations.

Future Precautions

To avoid similar issues in the future, take the following steps:

Request a W-9 form or W-4 form (for employees) before hiring contractors or employees. Classify workers correctly to avoid misclassification penalties. Ensure that all necessary forms are completed before making payments. Keep all documents properly organized and stored for easy retrieval.

By following these guidelines, you can minimize the risks and complications associated with obtaining the necessary identifying information for your contractors. Proper planning and documentation can save you time and avoid potential penalties from the IRS.