Tax Basics for Startups

Getting a Tax Identification Number from Independent Contractors (Form W-9)

Certain payments you make in your business for services to nonemployees must be reported to the IRS on Form 1099. In addition, a copy Form 1099 must also be provided to the recipient of the income. Form 1099 must include the recipient's tax identification number.

Form W-9 and Form 1099

Use Form W-9, Request for Taxpayer Identification Number and Certification to request a taxpayer I.D. from an independent contractor.

Form 1099 must be filed annually with the IRS for the following situations:
  • Payments of $600 or more to Nonemployees (Independent Contractors) such as accountants, attorneys, and subcontractors.
  • Rent payments of $600 or more, but not if paid to real estate agents.
  • Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows.
  • Royalty payments of $10 or more.
  • Payments to certain crew members, by operators of fishing boats.
  • Sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment.

Form 1096

Form 1096 is a transmittal form. It is used to summarize data on all 1099s being filed with the IRS. All 1099s are attached to Form 1096. The 1099s along with the 1096 are submitted to the IRS.

Due Dates

Form 1099 is due on the following dates:

  • To the recipient, by January 31.
  • To the IRS, by February 28, if mailed.
  • To the IRS, by March 31, if filed electronically.

If the due date falls on a Saturday, Sunday, or legal holiday, the due date is the next business day.

IRS Penalties

Form 1099 must include the recipients tax identification, or you as the payer could be subject to a penalty. You could also be subject to a penalty if the recipient's tax identification is stated incorrectly on Form 1099.