The new rules regarding 1099s imposed by the Patient Protection and Affordable Care Act (PPACA) of 2010 took effect in 2012, with more strict enforcement taking place in 2013. The purpose of these changes was to catch anyone who had been avoiding tax payments because they were contractors, not employees. While small business owners have always been required to gather this information from their vendors, the penalties associated with these rules have increased significantly for 2013.
As a business owner, it’s imperative that every vendor you pay has filled out the IRS Form W-9. If you are unable to obtain tax information from a vendor, it is strongly recommended that you maintain a detailed log showing your email and phone efforts to do so in order to protect your company from being assessed the penalties. After the third attempt with the vendor, if your company is still doing business with the vendor, then the IRS mandates that backup withholding in the amount of 30% be withheld from payments to the vendor. Additionally, if backup withholding occurs, then you are required to report and pay the withholding to the IRS on a monthly, quarterly or annual basis – just like payroll taxes. For more information on reporting requirements, you can visit the IRS website.
We are asking that all of clients review the list of independent contractors utilized during 2013 and make sure that they have a W-9 on file for them. If not please contact them immediately and ask that they fill one out prior to the end of the year. We will be sending a list of independent contractors to you to use as a checklist.
We recommend that all of our clients take a proactive approach by requiring every new vendor to submit a W-9 form prior to their first payment. Once obtained, this form should be scanned and emailed to our office immediately. This method gives you full compliance with the new laws.