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Many businesses inevitably run into a situation where the contractor they hire doesn’t pay their taxes. Although it isn’t your job to make sure they pay proper income tax, it could cause problems for your Form 1099 filings.
Responsibilities of the Payor (Business that does the hiring)
When you hire a contractor and pay them more than $600 in that tax year, it’s your responsibility to get a signed Form W-9. A lot of businesses choose to do this near the end of the year when tax season hits, but did you know you can actually do this ahead of time?
You can actually have your contractor sign a Form W-9 before you even begin your work and before you pay them any money. Since the signed form does not have a price amount on it, you can get it signed well ahead of time so you can use it as required when tax season comes.
Sometimes you may come across a business that refuses to provide you a signed Form W-9 or their tax information for you to use. In this case, it’s still your responsibility to fill out and send in the form 1099 but you would just leave the tax information blank and note that the business refused to provide an identification number.
This doesn’t mean you can just do this all the time though, you may be required to prove that you tried your best to get the information required, and this may mean showing emails or copies of written letters sent out and the dates that they were sent out.
Responsibilities of the Payee (Contractor that is hired)
If a contractor has actually done work for someone and been paid more than $600 in a tax year, it is mandatory to provide your taxpayer identification number. Refusing to provide a taxpayer identification number could mean a fine for each refusal, providing false information actually carries a higher fine than not providing it at all and may even lead to criminal penalties.
What If My Contractor Doesn’t Pay Their Taxes
If you have a signed W-9 from your contractor, you can file out a Form 1099 with details on the payments you made. This information is then sent to the IRS and any relevant authorities as needed. Once you have done this, you’ve basically done your part.
If the contractor you hired doesn’t pay their taxes based on what you report, they can either dispute your Form 1099 (but if you have proof of paying them, it’s very unlikely that someone would do this) or they can refuse to pay income tax. The choice they make won’t have anything to do with your business at this point, it’s between the contractor and the IRS.
If you already have an interior design business or are planning to start an interior design business in the near future, feel free to contact us and we can help you in whatever way we can. If you need a company to help with your bookkeeping and/or taxes, we can do that as well.