- The purpose of the W-9 is to gather information about a worker hired as an independent contractor. For instance, the W-9 provides the contractor's name, address and tax identification number. Later, the employer uses this information to issue a 1099-MISC. The contractor then uses the 1099-MISC to show on his tax return how much money the employer paid to him for the contracted work.
- The fact that a contractor won't submit a W-9 does not relieve an employer of its obligation to issue a 1099-MISC. If the employer doesn't have the W-9, it is difficult for it to do this. If the employer can get the information on the W-9 without the actual form, it still may be able to issue the 1099-MISC and classify the contractor correctly as an exempt or non-exempt employee for backup withholding, but the employer may miss the deadline for doing so. The IRS may charge the employer financial penalties under these circumstances, unless the employer can show that it made a good faith effort to obtain the W-9 from the contractor.
- Contractors should report wages from contracted work as income on their tax returns, using their 1099-MISC to do so. If a contractor doesn't have the 1099-MISC from his employer because he refused to give the employer a W-9, he may not accurately represent his income on the return. If the employer files documents with the IRS that show the contractor's earnings and the IRS notices that the contractor didn't account for the earnings properly on his return, the IRS may decide to audit the contractor. The contractor may face financial penalties for reporting inaccurate information on the return, having to refile or keeping a refund to which he truly is not entitled. Lack of a 1099-MISC also makes it difficult for the contractor to make decisions about paying quarterly estimated taxes in the following year, which increases the odds the contractor may end up owing the IRS.
- Employers are required by law to issue a 1099-MISC for any contracted work that totals $600 or more. If a contractor refuses to give the employer a W-9, the employer cannot comply easily with the law. For this reason, employers are within their purview to withhold payment until the W-9 is provided. They also may opt to stop using the services or products of independent contractors who won't fill out the form. For some independent contractors, the loss of even a single account could prove substantially harmful financially.
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