When paying a sub-contractor, it is extremely important that you receive all the information you will need for issuing a 1099-misc form at year-end.  That means you should NOT pay any sub-contractor until you have received the following information:

·         Legal name (This would be their first and last name if they are a sole-proprietor.)

·         Business name (This could also be their “legal” name if they are an LLC, Partnership, or a Corporation.)

·         Mailing address (This is the address they use when filing their business tax returns.)

·         Social Security number or Federal Employer Identification number, whichever applies

This information can be legally obtained by using the IRS Form W-9 which the sub-contractor is obligated to complete and return to you prior to receiving payment.  Without it, you are required to withhold 28% from their check to cover any potential tax liability, and will be required to submit that money to the IRS on behalf of the sub-contractor. 

Most small business owners are not aware of this requirement and continue to pay sub-contractors and then try to get the information the following year when the 1099 forms are being completed.  This not only delays the filing process, it can also cause the business owner to be financially responsible for any unpaid taxes.

Go to the IRS website (www.irs.gov) to their “Forms & Instructions” section to download the instructions and forms for the W-9.  The site also has instructions about reporting your sub-contractors on the 1099-misc form and details about the requirements for filing this form each year.  

Your tax preparer should be able to answer your questions about these filing requirements, and copies of these forms should be filed with your year-end business documents.

This entry was posted Tuesday, December 30th, 2008 at 3:56 pm and is filed under Tax Issues. You can leave a response, or trackback from your own site.