Backup Withholding: No W-9, No Pay? With Debra R. Richardson

SPEAKER_01 0:00

Welcome to Information Return Intelligence, the weekly podcast all about Form 1099 and related issues. This week we have a special crossover episode with Debora R. Richardson. So on this podcast, Debora is a guest on Information Return Intelligence, while at the same time, I'm a guest on her podcast, Putting the AP in Happy. Deborah was a longtime AP professional, and now she does AP consulting and training. Deborah is always an entertaining and enlightening guest to have, and we could talk all day about 1099 related things. Today we talk about backup withholding. Information return intelligence is powered every week by IOFM, the Institute of Finance and Management. Financial operations professionals, accounts payable, procurement, procurement to pay, accounts receivable, credit and collections, order to cash, whatever your organization calls it, and whatever your role, you're facing mounting pressures to improve performance. But despite the challenges you face, there are few reliable, independent, and comprehensive places to turn for help. That's where IOFM comes into play. Join literally thousands of your peers and become an IOFM member today. Check them out at IOFM.com. And now on to the show, a special episode with Deborah R. Richardson.

SPEAKER_00 1:40

Jason, good morning. My side. I'm in Michigan. How are you today?

SPEAKER_01 1:46

I'm doing well, Deborah. How are you? It's been a long time since we've talked, like nine months since we were guests on each other's podcasts.

SPEAKER_00 1:56

I know. I think back then we were talking about the W9, the new one that they publish, and if it was going to come out, and all the gray hair was probably causing root touch-ups for a lot of the folks out there. Luckily, that didn't happen, so we lucked out, but now we've got something else to talk about. It's always something to talk about when you're dealing with the IRS and vendors and reportable payments. So glad we could come together again.

SPEAKER_01 2:25

Absolutely. Well, you know, we both do weekly podcasts. And I know we've both thought about is weekly too much? Do we need to scale it back or whatever? But I'll tell you, I've got a long list of topics. People will say things to me like, oh, I never attend anything 1099 because what is there to even talk about? And it's like, I'm the wrong person to say that to because it's like, oh, I've got these 50 things, literally, for everybody to talk about. So there's always, as you say, there's always something to talk about. And then you throw accounts payable just in general into the mix. And it's like there's an unending amount of stuff we could talk about.

SPEAKER_00 3:08

Exactly. And so today we're going to talk about backup withholding, which by the way, is something that I don't hear talk talked about a lot out there, like at all. But it really plagues all of the accounts payable vendor teams that are out there. So before we get into that, I guess we should introduce ourselves to each other's audiences, right?

SPEAKER_01 3:32

Yes. So this is a crossover episode, like those old sitcoms or cartoons or whatever, where they cross over into each other's shows. That's what Deborah and I are doing today. So this is a podcast of Deborah's. It's my podcast, and we're guests on each other's show at the same time. So my name is Jason Dinison. I have been teaching on 1099 since 2012. And I've been a practicing accountant. I still prepare a few tax returns, but when I say a few, it's like 25 or 30 is all that I do, just to keep a toe in that. Most of what I do is this. I teach a lot. Both Deborah and I are heavily involved with a place called IOFM, but I do a lot of stuff elsewhere too with tax education in general. I teach continuing education that CPAs have to take for their annual hours. I teach a lot of those things. But 1099s is the thing I fell into. I hate using the word specialty. I really don't like that word. And sometimes the word expert kind of is like, you know what? Maybe don't use that word because I learn new things all the time too. I mean, expert implies that you just know off the top of your head. And a lot of times it's like, I don't know. I have to look that up because I've never heard someone ask that question in that way. But I've been doing this since 2012. And as we said, there's no shortage of things to talk about.

SPEAKER_00 5:12

All right. Well, I'm glad you used the word fell into because I fell into, like most people do, into accounts payable. And my last, I don't know, 12 years or so, I've been really focused on the vendor setup and maintenance process. Actually, it's been longer than that, but I used to be a practitioner. I was at a Fortune 15 company and we about 2,000 vendor requests per month, and about half of those we had collected W9 on. We also maintained 140,000 active vendors across seven different ERPs. And what does what number of 1099s, 1042s does 140,000 active vendors convert to? It's anywhere from about 24,000 to 30,000 1099s and 1042s per year. And don't be shocked at this, Jason, but we used to do that in-house back then. Hopefully, they're not still doing that in-house. But yeah, so it was a lot of 1099s. And yes, I unlike the person you talked to, I went to everything I could related to 1099s because they were always changing. Something was always changing, especially when they brought that 1099 in ECB. But yeah, so I used to be a practitioner and now I do consulting training, speaking. That's how we met at IOFM. We were both speakers at the conference. I focus really on the vendor setup and maintenance function, how to avoid fraud, fines, bad vendor data. But that does lend itself to the 1099s because typically AP will do the 1099s every now and again. I'll see some companies that get lucky, or AP teams or vendor teams that get lucky and their tax team does it. But for the most part, what I see is that lands in AP's world or the vendor team's world, if it's a separate department like what I was in. And so lots of experience with collecting the W9 and distributing and doing the tax filings for 1099s and 1042s, actually. That's me, Deborah. I don't even know if I said my name, Deborah Richardson.

SPEAKER_01 7:39

And I was gonna say, Deborah, not to get sidetracked from our backup withholding discussion, but the tax departments a lot of times don't want to do 1099s. It's like, no, we're not doing it. And it's AP that has to do it, even if they have a tax department, the tax department isn't gonna do it.

SPEAKER_00 7:58

And you know what? I'll blame them at all on that one. And as a matter of fact, because all of the departments knew that the vendor team did 1099s, they like shoved their 1099s on us. Can you just do these real quick while you're doing yours? Sure. Why not? And then they give us half the information. I'm like, oh but here we go.

SPEAKER_01 8:18

Well, that actually is a nice little segue into our topic today. And you've got the list. Well, I do too, but you you created the list. So I guess I'll let you kick us off with the talking points of what we really were wanting to talk about today with backup withholding.

SPEAKER_00 8:37

Yes, this actually came about because we had a webinar and took a look at the PDF and I saw something that said, and this is a little teaser for what we're gonna talk about in a minute, but it was no W9, no K. And I was like, can we do that? That would have been so great. And then I started thinking about the backup withholding and what we used to do. And so before we talk about that though, can you just give us a general overview of IRS requirements for backup withholding?

SPEAKER_01 9:11

Backup withholding, the quick version of it is that's just the term that tax law uses for income tax withholding on 1099able payments and 1042s. Really, though, what we're talking about today is 1099 backup withholding. 1042s is its own world that needs to be spoken about separately some other time. 1099 backup withholding just means you're withholding taxes from 1099able payments. So payments to contractors, but it could be anything that's going on at 1099. It could be a rent payment, interest and dividends, anything. Now I'm not gonna read all four of these, but there's four triggers. And the two big ones that your typical AP department is going to encounter are you don't have the payee, so your vendor, their 10 at the time you make a reportable payment. And then the second big trigger that a typical organization will encounter is with CP2100 letters, B notices. When you send a B notice, there's a time frame where your recipient has to respond with corrected information. And if they don't respond in that time frame and you pay them again, then you have to do backup withholding on those future payments. So that's the as tidy as it can be overview of what backup withholding is. There's two other situations, but those apply more to financial institutions paying interest and dividends.

SPEAKER_00 11:02

All right. So that's great. And so when I was a practitioner, let me tell you what we did. And I'm going to start with the CP2100s, which are the notices that you had tax filings and the legal name, tax ID combination of your vendor or vendors was not valid. And so you would think that with 24,000 or 30,000, 1099s that we would send out every year, that we saw a lot of vendors listed on our CP2100 notice. And it really wasn't because let me tell you what we used to do. If we did not receive a W9 from a vendor, and typically it was the vendors that would select that first tax class on the W9, the individual, sole proprietor, maybe single member LLC, and they just didn't want their income counted. And it would usually be with non-PO type purchases. So they were dealing with some random employee in the company, and they would provide the service or provide the products and then be like, hey, you have to pay us because you've done that. And what we would do is we would say, fine, we will pay you, but we are going to withhold. And at that time, it hadn't switched over, the backup withholding percentage hadn't switched over or changed to 24% yet. And so we would threaten that we would withhold 28%. And usually that was enough to get the vendor to submit the W9 with an accurate tax ID. And of course, we would do the 10 check and all would be fine. But let me tell you, we were kind of hiding behind that because out of all those seven ERPs, only one of them actually had an automated backup withholding process. All of the other accounting systems and ERPs we had, that was a manual process. So we threatened backup withholding, but that was a lot to do with the fact that we didn't want to do backup withholding because if we did, it would have been a manual process. But that's how we did it. At the time before we made the payment to the vendor, we would require a W9 with an accurate 10. We would do the 10 match. And if it was not a match, again, before we made the payment, while we still had leverage because they want their payment, we would go back to them, require an accurate 10 on a W9. And if they didn't give it to us, we would threaten withholding. But neither one of us wanted that withholding, not the vendor and not us, because we definitely didn't want to do a manual process. But that's what we did. And if we did not receive an accurate tax ID on a W9, we would withhold and we would make the payment, but we would withhold 28%. And then we would send that to the IRS, and the vendor wasn't happy. But that was one of the ways that I think we put down on what we had to do when we got that CP2100 notice because we were already backup with holding on that then.

SPEAKER_01 14:20

I think that's a good strategy, actually. It's a threat that you did follow through on if you had to, but usually just that threat of losing 28% or now 24%, they're not going to be happy, those sole proprietors who are trying to not get a reporting form at all, but they'll probably comply. I'm guessing it sounds like they did comply most of the time.

SPEAKER_00 14:45

Oh, yes, 99.999% did comply. And again, we were happy with that because we didn't want to have to, every now and again we would though, but we did not want to have to go through that manual process of withholding from a vendor's payment, doing the backup withholding from the vendor's payment.

SPEAKER_01 15:06

Now I'm gonna move ahead to our third question real quick. Backup withholding, you don't know yet if it's a reportable amount. Do you withhold? So this situation that we've just talked about where you threaten and then you actually do it if they don't give you the number. So what does the law say? The law says reportable uh payments, and that reportable is uh essentially defined as will end up on a 1099. I haven't seen anything from the IRS that indicates that they would do anything to you in the one in a million chance that they were like, hey, you withheld on this person that you weren't gonna issue a 1099 to, and we don't like that. I mean I suppose they could. I've never seen anything about that. I think it is an interesting philosophical discussion. And as you pointed out during our pre-conferencing or whatever on this, it could be hard to know always like, is this gonna end up on a 1099? I mean, maybe it's easy if it's the first payment and it's a hundred dollars, but when you've got 10,000 vendors and all these payments going out, it could be hard to know has this guy gotten to 2,000 yet?

SPEAKER_00 16:36

Yeah, and that was the other thing I saw too was looking at the point where it becomes a reportable payment. If it was a PO vendor, we might know because there was some documentation, maybe they had a contract that would say what the amount was going to be. But a lot of times when you create these vendor records, there's no PO yet. And even if it's a non-PO vendor, you don't really have a lot of documentation. We did not know when we were setting up that vendor how much that vendor was going to end up being paid. And so back then it was that $600 threshold everybody knew. And so, how did we know if we were going to pay them $599.99 or $600 and one, $600.1 cents? So we would treat them all as if they were going to be reportable. So if we didn't have a W9, we wouldn't know what their tax class was. And so we would treat them as reportable. And I don't know if they would have gotten to the IRS, if it would have been good or bad, but those types of folks that didn't want to give one because they didn't want their income reporting, they probably would not have contacted the IRS to complain. But we didn't know at the time we were setting the vendor up how much we were going to eventually pay them. And now that for the tax year 2026, it has that reportable threshold for some payments have increased to $2,000. And so that might be even harder because how do you know if you when you're setting that vendor up, if you're going to be over that reportable amount? You know, we could quote something and then it can go beyond that. And so what if you get a vendor that has a contract for, I don't know, $1,500, but then the scope increases. And so how do you know when that last invoice comes in that's going to put you over a $2,000 threshold? That at that moment, if you need to back up with hold, that is the moment you need to back up with hold. I will tell you, in our group, it was very big. We had 194 people in our accounts payable department. And so everything was separated. That's how I got only the vendors. There would have been no way I would have known there was no trigger to say this amount, now you have to start backup withholding. So we're gonna hold off paying this invoice until they can get that set up. That would have never happened.

SPEAKER_01 19:05

I guess what I would say is do the best you can because the far bigger problem, we'll talk about this a little bit later, but the far bigger problem is people don't do it when they're supposed to. Nobody's doing backup withholding, but if you get caught, it's really, really, really a big deal because they'll assess it against your organization. They're not going to chase after your vendors, they'll just assess it against you. And so I think that erring on the side of caution is better. And I have not I've not seen anything about this, but I can't imagine that the IRS would think differently about that.

SPEAKER_00 19:48

The other thing, too, is by the time the IRS finds out, some time has plans. And so you should have done that backup withholding months ago. I don't know how if it would be years, but at least months ago. And by that time, the IRS will not only come after your company for the amount you should have withheld, but then they will also assess penalties and interest as well. And so you definitely don't want to have that happen. I have been in the situation where I inherited a vendor master file, all the 1099 problems, and I had to be the one to go in and request the penalties and interest check from our finance director for something I didn't even do, and I just got in trouble. All I was trying to get was a signature. So that happens, and you definitely don't want to be the one to have to go in and request payment for IRS penalties and interest. And so you do want to make sure that if you have to back up with hold, that you are backup with holding so that your company isn't liable for any amounts.

SPEAKER_01 20:57

And I think that we should move ahead to the fifth question. I still want to talk about question two, but I think the flow of the conversation is to go to question five right now and continue that thread because I've got the statistics pulled up here.

SPEAKER_00 21:13

Yeah, so does the IRS really care?

SPEAKER_01 21:17

So they do, yes. It's kind of like the state patrol or something catching speeders on the interstate, though. It's like you could be driving down the interstate and see people whizzing by you going 100 miles an hour, and it seems like they don't get pulled over. But when you do, it's a big deal. So the IRS has studied this, actually. They came out with a report a few years ago, and they had looked at 2018 was the year of the study, and they determined that $14 billion of backup withholding should have been done. That's billion with a B as in boy. And only 9 million with an Mm was actually done. And I had to run the percentage, like I did it on my calculator on my phone several times. And then I even went into Excel and actually typed just to make sure, like, do I have this correct? That's 0.06% of the backup withholding that should have been done was actually done. So when people say like, oh, 99.9% of the time, that's literal here. It's 99.94% of the backup withholding that should have been done was not done.

SPEAKER_00 22:46

So wait a minute, Jason, what were we the 0.0, what 0.06%?

SPEAKER_01 22:52

Because we were doing backup withholding. Anybody who did backup withholding, you would be in the 0.06%. And and just for our listeners and watchers, 0.06 means 0.0006. That's how much backup withholding actually got done in 2018. And I don't think the numbers, I doubt that the numbers have changed since then. So very few people are doing backup withholding, and certainly very few are getting caught. But I have a cautionary tale along with that. There was a court case a few years ago. This guy named he had the last name of Cazata, James Cazata. He was a stonemason. But what he did is he would sell stonemason work to homeowners or whatever, and then subcontract the work. And he issued 1099s to his contractors. But the vast majority of his 1099s didn't have uh tins on them. And he didn't do backup withholding.

unknown 24:04

Okay.

SPEAKER_01 24:05

And the IRS audited four years. In this case, it was weird because it was 2005 through 2008, didn't have resolution until 2020. So it's like this took a long time. But the IRS was looking at those four years, which is funny because he admitted to the court that this was an issue before 2005 and after 2008. But the IRS, they fixate on certain things, and that's just what they happen to focus on. So here's what happens when you're supposed to do the 24% withholding, or back then it would have been 28%. If you don't do it when you're supposed to, they say, well, you should have done this amount. So now we're assessing it against you. So that's what Deborah was talking about with having to pay the penalties and interest and stuff. That's exactly what they do. They're not going to chase after your vendor. They'll just assess it against you. So they assessed over $1.2 million against this guy. See, he issued upwards of 130 forms in those four years. It's like 114 of them didn't have tins. So it was a lot of money, and it took the IRS forever. It was like 2015 before they finally gave him his final assessment. By then he had declared bankruptcy. So the you know what, Jason?

SPEAKER_00 25:38

But Jason, real quick, I was gonna ask you, does a stonemason have $1.2 million?

SPEAKER_01 25:45

I'm sure he didn't. No, I'm sure he didn't. So he declared bankruptcy. And so then the IRS put in the filings with the bankruptcy court. They want to make sure that they're in that line of creditors. And so he then protested that, and this case went to the bankruptcy court in his district. So what his argument was was there's a three-year statute of limitations, and it this was 2005 through 2008, and it took you guys forever to do anything, the statute of limitations had expired. And the IRS said when you do backup withholding, you have to file Form 945, and you didn't, and if you didn't file something, then there's no statute of limitations. And the bankruptcy court and a lower appeals court sided with the IRS. So he fought it one more time, and he got a favorable appeals court in 2020 that ruled in his favor, so he didn't actually have to pay $1.2 million. He didn't have to pay anything. The court in that ruling said, well, he did file the 1099s, and the 1099s had enough information on them that the IRS should have known that there was a problem and gotten their act together faster on this. Before anyone celebrates on that, I mean it's good for him, but the IRS came out in 2022 and said, We're not appealing the ruling, but we disagree with it, and we're gonna keep auditing this. And they laid out all the reasons why they think the court was wrong, and it's basically like, we'll see you at court again if you really want to challenge us. So I think that the point is, I mean, yes, it ended well for this guy, but for six years or something, he had $1.2 million hanging over his head. So that's why I always tell people avoid this altogether. The W9 is your best friend. Just get that information, get people's tins, and then you don't ever basically. I mean, there's CP2100 letters, but basically you don't ever have to worry about backup withholding, just get people's tins.

SPEAKER_00 28:13

And do the IRS 10 match because I run into teams all the time. Well, I run into teams that don't still that don't collect the W9, but I still run into teams that collect the W9, but then we'll not do the IRS 10 match. They're just saving it because I collected the W9. But if it doesn't have a valid 10 or it's an obvious, right, incorrect, inaccurate 10, you could run into this type of trouble as well. And it's funny though, Mr. Stonemason did the 1099s, didn't do the 945s, didn't collect the W9. So I wonder if after he received those notices, he started doing that.

SPEAKER_01 28:58

Well, that was addressed, actually. Okay. So 2005 was the first year that this happened. And the court, one of the court reports, said that he had gotten a letter from the IRS. It didn't say CP2100, but I'm assuming that that's what it was. And that the letter said, if you don't have tins, you should be doing backup withholding. And he didn't because he said he had people's tins. Now, he said he kept them in a notebook or something, and then of course he wasn't able to produce that to the court, but he was like, Well, I do have, I have their information, so he just ignored the CP2100 letters that he was getting.

SPEAKER_00 29:46

So you know, this is probably way off topic, but being a vendor myself now versus keeping vendors' information and storing it and making sure that no one has access to it that does not need access to it, right? That's the type of thing I did as an AP senior manager over vendor global vendor setup and maintenance. But in giving my W9 for my information to some vendors or to some clients, and yes, I do appreciate you, but definitely do not put my information in the notebook, and please don't put it in a spreadsheet. And even when you do have it in the vendor master file in your accounting system or ERP, please make sure that you have security around who has access to see it. Just saying.

SPEAKER_01 30:40

So that notebook thing, when you said that, I just I know, I know it it was it was wild that case. But you know, you see these things in the real world, like you say, people aren't getting W9s, they're not dealing with any of this stuff, and it's I say as we reach the end of the year that you should be looking now, make sure you've got your vendors' information because the thing is, what the law says is with that backup withholding, people think, oh, well, I'll deal with it in January, getting their 10, but that's not how it works. You're supposed to do backup withholding during the year when you make payments to people. So if you're discovering now that you have vendors that you're gonna send a 1099 to and you don't have their info, you're already violating the backup withholding laws.

SPEAKER_00 31:39

And that was again another reason why we just did it from the outset, because by the time, let's say we did not backup withhold, and we were in January, and now we're gonna do 1099, and we realize that we didn't get the W9, and we go to get it, and it's not valid. When we reach out to the vendor to get that W9, we don't have any leverage anymore because we've already made the payment. So, what is the leverage that we have for that vendor to actually give us that that W9 with an accurate 10 on it? We don't have any leverage at that point, and it's really gonna be something that's gonna be on us, not on the vendor, because like you said, the IRS comes after the organization, the company that should have done the backup withholding when it was required. So, on that note, that was another reason why we just did it before the first payment. And that leads to another question. And I will tell you that we never had this issue. We had the issue come up, but we always kind of denied it. And that was based on refunds. So, what if when we didn't receive the tax ID W9, we threatened the withholding and the threatening didn't work, and so we did withhold. And I am sure some of those payments may not have made it to the reportable threshold, right? But we withheld if we did not receive uh accurate tax ID W9 right before the first payment. And so some of the vendors would come back and would want a refund. And some of them, we would definitely say no for all of them, actually, unless we actually withheld an error. Maybe we fat fingered when we tried to do the 10 match, and it really was of the tax ID. That did not happen often. I don't remember any time that actually happened, but it could have, but it did not happen. If it did, it didn't happen often. But for the most part, when they would not give us the information, the 10, the W9 before the first payment, we withheld the 28% at least at that time. Now it's 24%. The vendor would come back and they would want a refund. And we would say no, we withheld correctly per what the IRS requires. And you would just make sure we're going to include that amount on your 1099, the amount we withheld, and you can use that with your tax returns and get your money back that way. They were not happy with that, but very rarely did we refund because for the most part it was all done validly, at least we thought so. Now, whether or not they made the reportable threshold, I don't remember, probably, I don't know, we might have been wrong in some of that. But again, our vendors never went to the IRS and said anything, at least not pronounced.

SPEAKER_01 34:37

That sounds correct. I mean, you only refund backup withholding if you truly did it in error. Otherwise, you put it in box four of their 1099 and they basically get it back when they file their tax return.

SPEAKER_00 34:51

Yeah, I'm thinking now, do we have at least a couple of vendors that we paid $599.99 to? Maybe. Probably not, but we again did not refund unless we actually did it in error. And that was very rare. So on that note, let's go back to a point that I talked about in the intro. Because I started thinking, is this something we could have done? So instead of if we didn't receive their W9 accurate tax ID, we would threaten that we were gonna backup withholds. But could we have said no W9 no pay? That was the thing that I saw that was like, let me ask Jason about that. Could we have said no W9, no pay?

SPEAKER_01 35:42

You could have threatened that, kind of like what you did with the backup withholding, and like we're gonna backup withhold on you, but it's so there is one piece of truth to that. I most of that when I say that is more like for dramatic effect. There is one thing though, is if in your vendor setup you won't sign a contract to begin with, like you won't set the vendor up at all until they get you a W9, that's different. That actually is legitimate if it's like, look, our process is we need a W9, we're not setting you up otherwise. That's okay. What happens though is if they've done work for you, now neither you nor I are attorneys, so we can't speak to legalities. But if you owe someone money, you really can't just say, Well, we're not gonna pay you, even though you owe them money, just because they haven't given you a W9. That would get into legalities of payment law and that sort of stuff. But from an IRS, see, from an IRS standpoint, the IRS doesn't say no W9, no pay. They say no W9, or more specifically, no 10, right? Then you back up with hold. That's the procedure is to back up withhold. So you can use that threat, but it's kind of an idle threat. If they really aren't gonna give you their 10 and they've done work for you, you're gonna have a hard time legally winning a battle if that person tries to come after you to collect on the pay that you owe them.

SPEAKER_00 37:36

Yeah, and that is something. So this is probably good timing for when this podcast is coming out because we're coming up to the calendar year end, depending on when the listeners or watchers find it. But coming up to calendar year end, you see that all the time. Invoices have sat on the internal team members' desk like all year, and then all of a sudden you get the invoice at the end of the year because all the notifications go out saying, make sure you send your invoice in. And so they dig around, find that invoice that's been on their desk again all year, and they've got no W9, and the invoice needs to be paid because the work has been done or the products have been received by that time, and so you have to get the invoice in, you need to pay. And our view was we need to get the invoice in because we needed to post the expense and we needed to pay, get the vendor set up so that we could pay the invoice. But and we would reach out for a W9, but we were under a tight year-in window for getting that in. And so if we didn't get in or if the vendor refused to send it in, we would definitely pay the invoice and we would back up with cold. We didn't do the no W9, no pay at that point. But if I'd thought about it, I might have threatened that.

SPEAKER_01 38:58

I don't know if it would have worked, but it's a good threat, you know. If you're if you're not a good little boy, Santa's gonna give you a lump of coal at Christmas. There you go. I mean, well, Deborah, I think that we're hitting our time limit because you have another podcast that you have to go record, I think.

SPEAKER_00 39:17

So um so let me just let's let's let's end with with this question. So if we're if we've got listeners, watchers that are like, haven't done backup withholding before, should I start? So if they're asking that question, what should they do?

SPEAKER_01 39:37

I think the very first thing is look at your vendor list and make sure that make sure. Should you have done backup withholding? Do you need to be doing it now? And it sounds really intimidating and scary because it's weird and literally 99.9% of people aren't doing it. But really all it is is just reducing the amount that you pay to your vendor by 24%. So if you're supposed to send them a thousand, you send them 760. And then the other 240, you're gonna keep that back. It's their expense, not yours, as long as you do it along the way. Then you need to research, and it's not hard to find this, what is your deposit schedule? Because you have to deposit your backup withholding. It's the exact same concept as payroll withholdings. In fact, you look at the payroll publication from the IRS to see your deposit schedule, and then you just submit your backup withholdings electronically, the same way you do your payroll withholdings, keep track of it, what you've done, report it on the 1099 as tax withholding, and that's that. It sounds so easy, would we just talk about it that way? But I think that once you've done it a few times, it's probably not so terribly bad.

SPEAKER_00 41:08

Yeah, and like I said, with our accounting systems ERPs, we did have seven, but and only one had a way to automatically withhold backup withholding, but you figure out how to do it in those systems that don't have it. And so if we've got listeners or watchers that do not have an automated way to backup with hold, you can figure that out. We did, and just make sure that you're doing whatever's required to backup withhold, whatever that process needs to be, and then document it by the way, so you can keep doing it in the future when it needs to be done.

SPEAKER_01 41:43

Yes, and I think I would close by saying that the bigger thing is preventative medicine and get those W9s so you're avoiding all of this to begin with, so that when you do uncover something where you should be backup withholding, it's just a one-off. You're not having to deal with dozens or hundreds of vendors with backup withholding. It's the one-off that you didn't catch over here because you've got a reliable process in place that weeds all of that stuff out most of the time.

SPEAKER_00 42:19

Right. Get that W9 and then do the 10 match before you set that vendor up. Yes. Great preventative medicine. All right, Jason. So this was good again.

SPEAKER_01 42:30

It's great. Thank you, Deborah. I'm sure we'll do this again. Our thanks to Deborah R. Richardson for being our guest this week on Information Return Intelligence. We do this every week where we talk about different things in the 1099 world. Join us again next week for another episode Dynasome Media Adventures.