Forms 1099-NEC and 1099-MISC for payments made in the course of a trade or business to independent contractors during calendar year 2024, are due January 31, 2025. One complication for many businesses in this tight timeframe is missing or incomplete vendor information. It is best practice to require a new vendor to complete Form W-9 before issuing the first payment, but there are often misunderstandings about how to complete the form. This is especially common with a sole proprietor and a single member LLC/disregarded entity.
Revised Form W-9 – Request for Taxpayer Identification Number and Certification
The IRS has released a new version of Form W-9 that makes it easier for sole proprietors, including those registered as LLCs, to complete the form and provide the correct information to the IRS.
Line 1 now includes a parenthetical explanation that sole proprietors or disregarded entities should enter the owner’s name on line 1. The name of the business should be entered on Line 2 if different than the owner’s name.
Line 3a clarifies that an LLC that is a disregarded entity should check the appropriate box for the tax classification of its owner.
Part 1 provides an important distinction between the correct taxpayer identification number to enter if you are a sole proprietor or a single member LLC. A sole proprietor may enter either their social security number (SSN) or an employer’s identification number (EIN) if the owner has one.* A single member LLC must enter either the owner’s SSN or EIN, not the EIN of the LLC.
Verifying that a vendor has reported the correct taxpayer identification number can be a hold up in the process of completing Form 1099s. When this is done as new vendors are hired and then summarized at the end of the year, preparing the forms in January is a smoother process.
This is also important because businesses risk a penalty from the IRS and are subject to the backup withholding requirements if they do not have or do not report the correct TIN for the vendor.
Additional explanations are in the Form W-9 (Rev March 2024) instructions, but please contact your Boyum advisor with any questions.
* A sole proprietor may have an EIN if they file payroll tax returns or if their bank required one when opening a business account.