The Form W-9 Is Not a Personal Attack

Every year, the same thing happens.

A business requests a Form W-9 from a vendor… and the reaction ranges from mild annoyance to full-blown panic.

Let’s clear something up immediately:

A W-9 on its own means nothing.

It does not automatically mean you’re getting a 1099.
It does not “trigger” the IRS.
It is not a conspiracy.

I can’t believe I even have to write this. But inceraisngly, each year, I have to explain that a W9 is not your customer or vendor or the IRS “coming” for you or trying to “track” you.

It is simply a basic information form. It’s existed for years. About 1984 to be exact.

What a W-9 Actually Does

A Form W-9 tells the requesting business:

• Who you are

• What type of entity you are

• And thus how you’re taxed

• Where tax forms should be sent if required

That’s it.

Many corporate offices require a W-9 from every vendor as standard procedure. Others use it simply to maintain accurate contact and tax records. It’s routine compliance — not an accusation or a tracking system.

If You’re a Business Owner, You Should Be Collecting Them Too

Here’s the part many people miss:

If you operate a business, you should be collecting W-9s — not just complaining about receiving them.

You need W-9s to properly issue 1099s when required.
And if you ever need to chase payment, enforce a contract, or place a lien, you’ll be glad you already have the correct legal and tax information on file.

This is basic risk management.

“I’m an LLC. I Don’t Need to Fill One Out.”

Yes. You do.

“LLC” is not a tax classification. It’s a state-level legal structure.

For federal tax purposes, an LLC is taxed as one of the following:

• Sole proprietor

• Partnership

• S-corporation

• C-corporation

That tax classification — not the letters “LLC” — determines how 1099 rules apply.

The W-9 simply clarifies how you are taxed so the payer knows whether a 1099 is required.

In fact, everyone needs to and should fill out the W9 if it’s requested. Even corporations. Because the person sending it doesn’t know you’re incorporated! Once you send them the form, they’ll know and actually take you OFF their list.

What If You Do Receive a 1099?

A 1099 is not “extra tax.” It is reporting.

The income shown on a 1099 should already be included in your books. On your tax return, that income is offset by legitimate business expenses such as:

• Wages paid

• Cost of goods sold

• Contractor expenses

• Operating costs

Many incorporated businesses receive 1099s even when they are technically exempt. It does not change the accounting. It does not automatically increase tax liability. It simply documents income that should already be recorded.

Why This Actually Matters

The IRS does not view W-9s and 1099s as optional paperwork.

There are real penalties for failing to issue required 1099s — and those penalties fall on the business that failed to collect the W-9. You’re not exempt if the person doesn’t respond.

If you refuse to provide one, you are asking your customer to take on unnecessary compliance risk with real monetary penalties.

Most established businesses will not do that.

They will not argue.
They will not chase you.
They will quietly hire another vendor who understands standard business procedures.
We’ve done this. We advise our clients to do this. And we’ve seen clients do this.

Compliance is table stakes for these big companies. If you want corporate contracts or to scale, you need to get over the W9.

Refusing to participate in basic documentation doesn’t make a business look principled. It makes it look risky and immature.

There’s Also a Relationship Cost

Well-run businesses choose vendors who:

• Understand basic compliance

• Don’t create avoidable risk

• Don’t turn routine administration into conflict

Being hostile about standard paperwork is a fast way to lose good clients, not because they’re petty, but because they’re protecting themselves from IRS notices, penalties, and cleanup work they don’t want.

Final Takeaway

If a W-9 feels threatening, that’s usually not a paperwork problem; it’s most likely a systems problem.

Review:

• How you’re classified for tax purposes

• How your income is being reported

• Whether your bookkeeping supports your filings

Compliance work at this stage of business should feel routine and uneventful. If it feels stressful, something deeper likely needs attention.

Clean it up now, before the IRS or your customers force the issue.

At higher levels of business, this isn’t controversial. It’s just how things are done.

And we’re pretty sick of answering these questions and explaining it each year!

— Steinke & Company

Can’t Pay Your Taxes? Here Are Some Payment Options

Although most (74% in 2020) American taxpayers receive a refund each year when they file their income tax returns, there are those who for one reason or another end up owing. Of those who owe Uncle Sam many don’t have the means to pay what they owe by the return due date (usually in April). 

Generally, tax due occurs when a wage earner has under-withheld on his or her payroll or a self-employed individual failed to make adequate estimated tax payments during the year. This can be a huge problem for those who are unable to pay their liability.   

It is generally in your best interest to make other arrangements to obtain the funds for paying your 2021 taxes rather than be subjected to the government’s penalties and interest for payments made after April 18, 2022. Here are a few options to consider.

·         Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.

·         Home Equity Loans and HELOCs - Use the equity in your home—that is, the difference between your home’s value and your mortgage balance—as collateral. As the loans are secured against the equity value of your home, home equity loans offer extremely competitive interest rates—usually close to those of first mortgages. Compared with unsecured borrowing sources, such as credit cards, you’ll be paying less in financing fees for the same loan amount. Unfortunately, obtaining these loans takes time, so if you anticipate that you’ll need funds from such a loan to pay your taxes that are due in April, you should get the application process started right away.

·         Credit Card – Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay a credit card discount fee (the fee charged by the credit card company), you will have to pay the fees due and pay the higher credit card interest rates.

·         Short-Term Payment Plan – If you can fully pay the tax owed within 180 days and owe less than $100,000 including tax, penalties, and interest, you can apply for a short-term payment plan online at the IRS web site. You won’t be charged a set-up fee but will still have to pay penalties and interest until the balance owed is fully paid. Setup fees will be charged if you apply for a payment plan by phone, mail, or in-person instead of online.

·         IRS Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate. There is a user fee to set up the payment plan. However, the IRS generally waives the fee for low-income taxpayers who agree to make electronic debit payments. In making the agreement, a taxpayer agrees to keep all future years’ tax obligations current. If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of the streamlined option.

·         Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement lifestyle and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.

Filing Extensions – Don’t mistake the ability to apply for an extension of time to file your tax return as also being an extension to pay any tax liability. It is not and does not grant you an extension of time to pay. The penalties and interest on the amount due will continue to apply as of the original due date of the return.   

Enforced Collections - If the taxes cannot be paid timely, and the IRS is not notified why the taxes cannot be paid, the law requires that enforcement action be taken, which could include the following:

• Issuing a Notice of Levy on salary and other income, bank accounts or property (IRS can legally seize property to satisfy the tax debt)

• Assessing a Trust Fund Recovery Penalty for certain unpaid employment taxes.

• Issuing a Summons to the taxpayer or third parties to secure information to prepare unfiled tax returns or determine the taxpayer’s ability to pay.

Note: To collect delinquent tax debts, certain federal payments (vendor, OPM, SSA, federal salary, and federal employee travel) disbursed by the Department of the Treasury, Bureau of Fiscal Service (BFS)) may be subject to a levy through the Federal Payment Levy Program (FPLP).

Fresh Start Initiative - The IRS also has what is called the “Fresh Start” initiative to offer more flexible terms in its existing Offer-in-Compromise program which, under certain circumstances allows taxpayers to settle their tax debt for reduced amounts. This enables financially distressed taxpayers to clear up their tax problems faster than in the past. While resolving tax problems might previously have taken four or five years, taxpayers may now be able to resolve their problems in as little as two years.  

If you have questions about the payment options or an offer-in-compromise, please call your tax preparer. Don’t just ignore your tax liability because that is the worst thing you can do.