In March and April, some of your peers will receive CP2100/CP2100A notices from IRS that will require them to mail out B notices notifying vendors and contractors that they need to update their Form W-9, or else payments will be noticeably smaller due to 24% backup withholding.
Right now your A/P team is collectively holding its breath, hoping these forms don’t come, because it’ll mean the Service found vendor/contractor Taxpayer Identification Number (TIN) errors on an information return.
Tricia Richardson, CPP, SPHR, SHRM-SCP, offered some tips on how to avoid B notice hassles during the Premier Learning Solutions on-demand workshop “TIN Verification and B Notices: How to Avoid Costly Mistakes and Penalties.”
Use the TIN matching site regularly
To save time and headaches for your A/P pros, Richardson recommended registering with the IRS TIN matching system online and using it to periodically audit all vendor/contractor TINs.
But there are some important things to know before using it:
- The site won’t let you create a login specifically for your company, so the Finance staffer that registers will have to use their personal tax information to do so. This is to prevent fraud and misuse of TINs, she said.
- IRS will let you use an ID.me account to sign in. If you don’t have one, the TIN matching site has a link to click on to create it, and
- After clicking the “Access SOR” (Secure Object Repository) button, there are two ways to submit TINs: the interactive option, where you send up to 25 TINs and get results back in five seconds, or bulk matching by uploading a text file with up to 100,000 TINs. The results for that come back within 24 hours.
The IRS TIN matching site assigns the following codes to vendor/contractor TINs that you upload:
- 0 – no error, vendor name and TIN match IRS’s records
- 1 – TIN is missing or it’s not a nine-digit number
- 2 – TIN doesn’t exist
- 3 – vendor name and/or TIN doesn’t match IRS’s records
- 4 – invalid TIN matching request
- 5 – duplicate TIN matching request
- 6 – if you’re matching a TIN against a Social Security Number (SSN) and the TIN code is 3, “a matching TIN and name control is found only on the NAP DMI database”
- 7 – if you’re matching a TIN against an Employer Identification Number (EIN) and the TIN code is 3, “a matching TIN and name control is found only on the EIN/NC database,” or
- 8 – if you’re matching a TIN against an EIN and an SSN and the TIN code is 3, “a matching TIN and name control is found only on both the EIN/NC and NAP DMI databases.”
Unfortunately, the codes don’t give you any guidance about what you need to do to correct the error.
If you get a CP2100/CP2100A and the TINs in question come back as matching IRS’s records on the site, reach out to the agency and tell them the numbers were verified and correct. However, if there’s a discrepancy, and you’ve double-checked that a data entry error wasn’t made, notify the vendor ASAP that they need to submit another W-9.
“Create a process how you’re going to handle this,” said Richardson, adding that letters informing vendors/contractors of inaccurate W-9 info should:
- Explain the IRS backup withholding requirement
- Let them know the mismatch with IRS records could affect their tax returns, and
- Provide a deadline to give you a corrected W-9.
To ensure vendors and contractors open your B notices, be sure to clearly mark the mailing envelope with “Important tax information enclosed” or “Important tax return document enclosed,” per IRS guidelines.
Also, because a contractor may put their Social Security Number on a W-9 instead of a TIN – which can trigger a B notice, or even a contractor/employee classification audit – IRS.gov has a Social Security Number verification service on its TIN Tools page.
What’s in a name? Plenty
Besides getting the TIN right, the vendor/contractor’s name matters. A contractor “doing business as …” can trip up Finance and inadvertently cause B notice problems because the name on the pay-to line on their checks doesn’t match the name on the contractor’s 1099.
“You may have a vendor … or a contractor that wants you to make the check payable to … a name they’re doing business as. It’s important, especially in that case, to maybe have the conversation: ‘What name is associated with (the official taxpayer) ID number you’re giving me?'” Richardson said.
Sometimes contractor businesses change their names mid-year because of a merger or other business decision, she added.
B notice, backup withholding prevention
The best way to avoid having to send B notices to vendors is proactive prevention. For example, consider putting a W-9 requirement in your contracts.
In addition, Richardson suggested implementing a formal contractor onboarding process with A/P and Payroll that includes completing a W-9 as well as providing documents that prove they meet all contractor requirements under state law.
The reason Payroll needs to be involved? “You might have some payments being issued on a 1099-NEC, some on a [1099-MISC], some on another type of 1099 … and you might … have two different types of 1099s going to the same person. So you want to make sure your payment types are mapped to the correct 1099 and the correct 1099 box,” Richardson said.