Many businesses have recently received a letter from the IRS notifying them about incorrect payee information and that they may need to begin backup withholding. Here is an explanation of what these notices mean.

The bottom line is this is a warning and a reminder to request correct Social Security numbers or federal EIN’s from the individuals and businesses listed in the notice and to start back-up withholding if you cannot obtain the correct information.

According to IRS regulations, you are required to withhold 28% of any amounts paid to an independent contractor if they have not given you their federal ID number or Social Security number. That’s why you are supposed to obtain a completed W-9 before you make any payments to an independent contractor.

If you have received one of these notices what has happened is you filed 1099’s for 2013 with either incorrect or missing numbers. Accordingly, the IRS is informing you that if you make any FUTURE payments to these individuals and companies, you are required to withhold the 28% and IF YOU DON’T the IRS will assess a penalty on us. You do not have to do anything about the prior year payments.

Fortunately, there is no penalty for first-time offenders. So as long as you correct the situation you will not be penalized.

If you need a W-9 to send to any of your independent contractors, you can download a copy on my Website Resource page