Randy J. Elder, CPA, P.C.

W-9s and 1099-MISC: What small business owners need to know

W-9s, 1099-MISC, and Arizona small business

The use of independent contractors (ICs) by small businesses in Arizona and around the country is on the rise. The benefits to small business owners from using ICs include no payroll taxes, no health insurance and a greater ability to manage work volume fluctuations.

However, since businesses often use ICs intermittently throughout the year, it can be easy to lose track of how much you have paid your IC and whether or not you will be required to issue a 1099-MISC. Don’t get caught in this trap!

Small business: Here’s what you need to know about the W-9 and 1099-MISC forms.

If you paid an IC $600 or more within the year, you are required to issue them a Form 1099-MISC to claim the deduction for their labor and expenses and avoid penalties. Use the IRS Form W-9 to obtain your IC’s tax ID number. You must have the tax ID number when filing Form 1099-MISC.

Too often I have seen small business owners forget or simply think a W-9 is unnecessary when hiring an IC for simple repairs or services. Then, as the year goes along, they re-hire that same IC for new projects and quickly hit the $600 mark. The very nature of IC’s means that they are highly fluid individuals and they may be hard to track down. To avoid any headaches and time wasted trying to track your IC down, the best practice is to have them complete the W-9 before starting the first project. That way you have it on hand. If you don’t need it – great. If you do – you are covered.

What information is required on the W-9?

If you haven’t worked with Form W-9 previously, it is relatively simple. The IC enters their name, contact information and tax ID number. It also includes a signature block for the IC, certifying the information and insulating you against penalties any of the information provided is incorrect.

A note for our current small business clients.

Due to assessing the onerous penalties against not only business owners but also tax and accounting professionals filing forms 1099’s with missing information, our policy is to have all of our clients’ vendor information before filing. Without complete form W-9’s for all suppliers, clients will need to file their own 1099 forms.

For more tax information resources, visit my Tax Information page. If you have any questions, please contact me at (602) 375-0474.