The Importance of Requesting Name, Social Security Number (ITIN), and Address When Hiring Personnel

When you hire someone for professional services and they are not your employee (they do not receive a Form W-2 ), you must gather certain basic information: name, Social Security number or ITIN, address , and supplement it with the total amount paid for the year . This information is essential for issuing Form 1099-NEC at the beginning of the next fiscal year, complying with the IRS, and reducing your tax liability on your tax return. In other words, in order to reduce the amount you paid someone for services from your taxes, you must give them a Form 1099-NEC, which they will then use to file their taxes.

1. Form 1099-NEC and the obligation to report payments

If you pay $600 or more to an independent contractor during the year, you must submit a Form 1099-NEC to the service provider and the IRS. To do this correctly, you need to have the contractor's legal name, address, and valid TIN (SSN or ITIN). This not only complies with regulations but also reduces the risk of audits and fines.

2. The W-9 form: a key tool for collecting information

The IRS recommends requesting a Form W-9 from each contractor before making the first payment. This document contains the contractor's legal name, address, and TIN, and serves as the basis for preparing Form 1099-NEC . Keeping W-9s for your records is one of the best practices for demonstrating compliance with the regulation.

3. Avoid penalties and backup withholding

If you don't have a valid TIN from your service provider, the IRS may require you to withhold a portion of the amount owed, known as backup withholding , meaning you can retain 24% of future payments . Additionally, you could receive CP2100 notices from the IRS and face penalties. Requesting and verifying this information from the start avoids unnecessary problems and expenses.

4. Difference between employee and independent contractor

It's key to distinguish between an employee (W-2) and a contractor (1099-NEC) . The IRS suggests evaluating factors such as:

Who controls the work and how it is done.

Who assumes the expenses and tools.

The contractual relationship between the parties.

Misclassifying a service provider can result in payroll tax liabilities, penalties, and fines.

5. The most convenient way to increase deductions and reduce tax liability

Properly issuing a Form 1099-NEC not only complies with the IRS, but also strengthens your position by claiming deductions to which you're entitled. Keeping contracts, W-9 forms, payment records, and filed forms supports your business expense deductions, which helps reduce your tax liability— in other words, you'll pay less tax .

Practical list for individuals or businesses that hire services

• Request a signed Form W-9 before your first payment.

• Verify that the TIN is valid (SSN or ITIN).

• Keep contract and payment receipts.

• Issue Form 1099-NEC if you pay more than $600 in the year.

• Start backup withholding if you are not provided with a valid TIN.

Conclusion

Collecting basic information like name, SSN/ITIN, address, and total paid isn't a simple process, but an essential practice to comply with IRS regulations. Issuing 1099-NECs correctly protects you and your business by reducing your tax liability and allowing you to benefit from the tax deductions to which you are entitled.

At Professional Taxes LLC, we can assist you throughout the entire process, from filing forms to tax planning for your company or business.

Sources consulted

IRS — Reporting payments to independent contractors (Form 1099-NEC overview). Internal Revenue Service

IRS — About Form 1099-NEC, Nonemployee Compensation . Internal Revenue Service

IRS — Form W-9, Request for Taxpayer Identification Number and Certification (and Instructions for the requester). Internal Revenue Service+1

IRS — Backup withholding (Topic No. 307) and CP2100/CP2100A notices. Internal Revenue Service+1

IRS — Independent contractor (self-employed) or employee? guidance (common law rules).