Federal TIN Matching and the Form 1099

Tax Professionals Resource
September 10, 2012 — 2,886 views  
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If your business employs the services of independent contractors, you must document your payments to these contractors and report them to the Internal Revenue Service (IRS). Payments to independent contractors are generally reported via an IRS form 1099. 

In order to prepare 1099 forms, your business must collect a taxpayer identification number (TIN) from each of your independent contractors. You collect these numbers on a W-9 form that you retain in your own offices. Contractors may use a social security number (SSN) or individual taxpayer identification number (ITIN) on their W-9 forms. In some cases, contractors will use an employer identification number (EIN) on the W-9 form. 

On occasion, contractors may provide you with inaccurate TIN information. When you file a 1099 form with an incorrect or missing TIN, the IRS sends a notice to you, the payee. In turn, you must send a notice to the independent contractor and may be required to begin backup withholding. This process can be complicated and time-consuming. In order to avoid such TIN issues, the IRS offers online TIN Matching services to qualified payees. 

Payees who have filed information returns with the IRS for two consecutive years qualify to use the TIN Matching program. The IRS has worked hard to make this system easy to use. Payees who wish to use the TIN Matching program can generally do so 24 hours a day, seven days a week. Payees who need additional assistance using the TIN Matching program can call an IRS customer service agent during business hours. 

How the TIN Matching Program Works

If you wish to use the TIN Matching program, you will need to collect TIN information from your independent contractors and enter that information into the IRS's online database. The TIN Matching program will then notify you if the information that you entered is valid. If information is not valid, you can contact the individual in question and gather updated TIN information. 

How the TIN Matching Program Benefits Your Business

Most payees wish to avoid receiving IRS notices regarding incorrect TIN information. While businesses are not generally penalized for providing incorrect TIN information for an independent contractor, they are required to take certain steps to notify a contractor of TIN problems and may need to begin backup withholding. Using the TIN Matching program is a great way for payees to cut down on the stress of preparing such notices and to streamline the independent contractor pay process.

Tax Professionals Resource