How to Report a Contractor That Won't Submit a W-9
The Internal Revenue Service doesn't require you to "report" a contractor who refuses to give you a completed W-9, but it does require you to take action. If you don't, you might be at risk for penalties. A W-9 is your contractor's sworn certification that you do not have to withhold backup taxes from what you pay him. Generally, he might be subject to backup withholding if he has under-reported income to the IRS in the past. He's also subject to it if he doesn't sign and submit a W-9, telling you he's exempt.
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Instructions
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Call your contractor and inform her that you will not be able to use her services and pay her for them if she doesn't immediately provide you with a completed and signed W-9 Form. Notify her by certified mail, return receipt requested, as well. Include an additional W-9 Form in case she misplaced the first one.
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Send your contractor an IRS "B" Notice if he has already performed work for you and you owe him payment. This notice is available on the IRS website, and it instructs your contractor that if you do not receive a W-9 from him by a certain date, usually within 30 days, you will have to withhold backup taxes from his payment. Enclose another W-9 form.
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Deduct 28 percent from your next scheduled payment to your contractor if she doesn't provide you with a W-9 within the allotted time. For example, if you owe her $1,000, pay her only $720.
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Deposit the 28 percent of the payment you withheld with the IRS through whatever method you normally use to submit withholding amounts for your employees and other contractors. Your business might be set up to use the electronic federal tax payment system, or EFTPS. If so, you can make the payment this way. If you're an individual or if you're self-employed, access Form 8109 from the IRS website and take it to an authorized bank. You can pay the bank, and the bank will pay the IRS.
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Tips & Warnings
The 28 percent rate for backup withholding was applicable through the 2012 tax year as of the date of publication. If you have to withhold from a contractor after that date, check with the IRS or a tax professional to make sure the rate is still in effect and you don't have to withhold more.
If you do use the contractor's services even though he hasn't given you a W-9, and if you pay him the full amount you owe him without withholding 28 percent and sending it to the IRS, the IRS will expect you to pay that 28 percent out of your own pocket, plus any applicable interest or penalties. Federal law obligates you to withhold 28 percent if the contractor doesn't certify that it's not necessary.
