If you make payments to independent contractors in the course of your business, payments that total over $600 for the year to any individual contractor must be reported on a Form 1099-MISC that you send to the contractor and to the IRS. One of the reporting requirements on Form 1099-MISC is the contractor’s tax ID number. The tax ID number could be the contractor’s social security number or a federal employer identification number.
You should normally request the contractor’s tax ID number when you contract the work and before you make payments to the contractor. You should give the contractor Form W-9 to request the tax ID number. If the contractor does not give you the number you would generally be required to withhold tax at a rate of 28% on payments to the contractor, until a valid tax ID number is provided. You as the payer could be subject to a penalty if you do not comply with the backup withholding requirements.
If you submit a 1099 without a taxpayer ID number for the contractor, or if the contractor has given you an invalid number, the IRS will send you a CP2100 or CP2100A notice. This notice means that you have to start backup withholding on payments to the contractor. You will also have to make annual solicitations to obtain the contractor’s correct tax ID number. You must make these solicitations in order to avoid a penalty for failing to include a valid taxpayer ID number on Form 1099-MISC.
If you pay a contractor who is not a citizen or resident of the U.S. you may need to withhold U.S. income tax from the payments. Tax would generally be withheld at a rate of 30%. But you would not be required to withhold tax if the foreign contractor is exempt from U.S. income tax because of a U.S. tax treaty with the contractor’s home country. In this case the contractor should provide you with a Form W-8BEN. If you withhold tax from foreign contractors you would need to file Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, as part of your year-end tax information reporting.
According to the IRS, agricultural workers with an H-2A visa are eligible to obtain a social security number. If they are unable to obtain a social security number, they can obtain a taxpayer ID number from the IRS. You are not required to withhold U.S. federal income tax from payments to these workers, unless they request voluntary withholding.
The amounts you pay these agricultural workers would be reported on Form W-2 and not on Form 1099-MISC. But if the worker does not provide you with a social security number or taxpayer ID number, you would have to withhold U.S. federal income tax at a rate of 28% until the worker provides the number. If total payments are over $600 for the year, you would report the payments and the tax withhold on Form 1099-MISC.
In order to support your tax deductions for payments to contractors, you should first request the contractors’ tax ID numbers before you contract and pay them. Give the contractor a Form W-9 to complete and keep a copy for your records. If the IRS determines that the number is invalid, you should comply with the backup withholding requirements and keep copies of the annual solicitations.
Backup Withholding, IRS
Foreign Agricultural Workers, IRS
Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, IRS
Form 1099-MISC, IRS
Form W-9, Request for Taxpayer Identification Number and Certification, IRS
Instructions for Form 1099-MISC, IRS
Paying Independent Contractors, IRS
Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, IRS
Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s)