The IRS requires payors who remit payments to vendors (ex. self-employed contractors) to obtain a name and tax ID number from the vendor on Form W-9 prior to payment. The information is then reported on Form 1099 returns (e.g., 1099-MISC, 1099-NEC).
How will I know if the name or tax ID provided by the vendor is accurate?
The IRS has a free TIN Matching service where payors can enter the information and the IRS will respond by providing a report that verifies the name/TIN combination using the following codes:
- Unable to submit – Name submitted with multiple TINs. Check your records for accuracy.
- TIN not in IRS records. Verify TIN with recipient.
- Name/TIN combination does not match IRS records. Verify TIN with recipient.
In response, the payor should contact the vendor and may ask them to provide either a copy of their social security card or the IRS letter issuing an EIN. If the vendor is not cooperative (“recalcitrant” in IRS parlance) the payor is required to apply 24% backup withholding immediately on all future payments.
Potential penalties for noncompliance
Failure to exert due diligence in obtaining the correct number and/or apply backup withholding could result in late penalties for 1099 filings. Payors may also be on the hook for backup withholding payments which should have been withheld but weren’t.
Payors who make a regular practice of verifying vendor name and Tax ID can avoid or mitigate any penalties for missing or incorrect vendor Tax ID numbers.
Accurate name matching
Occasionally, the way a name appears in IRS records can be unclear, particularly with foreign names. For example, a participant’s last name, such as De La Cruz or Yu Jung, might be recorded as Dela Cruz or Yu-Jung. If the name on the Form 1099 doesn’t match IRS records exactly, it may show up as an error on the TIN matching report. To resolve this, request a copy of the Social Security Card or IRS EIN letter to confirm the exact name and Tax ID as recorded by the IRS.
If you have questions TIN matching or need help with 1099 reporting, please reach out to your Wegner CPAs tax advisor for guidance.
