Reporting Interest without TIN

8/4/2011

By Mark Corey, CPA

Most of us are very familiar with the Form 1099-INT used to report earned interest income. Its general rules are familiar, but what do you do as a payer of interest when the receiver of the interest has no taxpayer identification number (TIN)?

If you are required to report interest earned by a client, generally when the client earns $10 or more of interest income in a calendar year, then you must report a TIN for that client. The US government wants assurance that the person earning interest income will report and pay tax on those earnings. In fact, the Internal Revenue Service (IRS) has a TIN matching program where they match the TIN's reported on various 1099s to taxpayer's individual tax returns to make sure they are reporting all of their income.

The process for obtaining a TIN starts with Form W-9 - "Request for Taxpayer Identification Number.” If that form was not filled out when your client began doing business with you then you should send that form to the client as soon as possible. When it is time to prepare and mail 1099-INTs, if you do not have a client's TIN you must withhold 28% of the earned income from the client and submit that to the Treasury Department as "Backup Withholding.” The failure to obtain a TIN from a client with a 1099 reporting requirement is one of several instances where you may have to withhold on a client's earnings.

There are a few circumstances where you may not have to withhold if the taxpayer does not furnish a TIN. One is where they have indicated on a form W-9 that their TIN has been "applied for.” If the client has certified that their TIN is applied for by signing the W-9, they have 60 days to provide that TIN before you start backup withholding. Another instance is if the client is an exempt recipient, such as a corporation or other organizations.

Since a payor of interest can be liable for required backup withholding if they fail to withhold it from a client, and since there are numerous exceptions, conditions and nuances to the 1099 reporting rules you should always consult with a qualified tax consultant if you have any questions on 1099 reporting.