How to deduct taxes from contractor without ITIN or SSN? 1099 filing question

This is actually a common issue with a specific process to follow. When someone doesn't have an SSN or ITIN yet, they can't complete a valid W-9, and you can't properly issue a 1099 without a TIN (Taxpayer Identification Number). What you need to do is initiate "backup withholding" at the rate of 24% on payments to this contractor. You'd withhold this from their payments and submit it to the IRS. You should also have them fill out a W-9 and write "Applied For" in the TIN section - don't use zeros or made-up numbers as that could cause problems later. Once they get their ITIN or SSN, have them complete a new W-9, and you can stop the backup withholding. When it's time to file, you'll issue the 1099-NEC showing the payments made and the tax withheld. You should also give the contractor a letter explaining why you're withholding taxes, so they understand it's not optional but required by tax law when a TIN isn't provided.

After struggling with almost the exact same situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much stress! I had a contractor without an ITIN and wasn't sure how to handle the 1099 filing properly. The tool analyzed my situation and walked me through the backup withholding process step by step. It showed me exactly how to fill out the forms, what to write in the TIN field, and how to calculate the correct withholding amount. It even generated a template letter to give to my contractor explaining why I needed to withhold 24% of their payment. The best part was that it kept track of everything so when my contractor finally got their ITIN, the system helped me update all the necessary documentation.

I was really skeptical at first about using taxr.ai, but after struggling with this exact contractor no-ITIN situation, I decided to give it a try. Man, am I glad I did! The backup withholding process was way more complicated than I expected, but the tool broke it down perfectly. The step-by-step guidance helped me avoid what would have been a huge mistake - I was going to have my contractor put all zeros in the TIN field, which apparently can trigger automatic penalties. Instead, I learned to have them write "Applied For" and document when they applied for their ITIN. It also helped me set up a proper paper trail to show the IRS I was making a good faith effort to comply, which is apparently super important if you get audited. Definitely worth checking out if you're in this boat.

If you're struggling to get answers about this contractor situation, I'd recommend Claimyr (https://claimyr.com). I was trying for WEEKS to get through to an actual IRS agent who could tell me exactly how to handle 1099s for contractors without ITINs. After multiple failed attempts and hours of hold music, I found Claimyr and watched their demo (https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS representative in about 15 minutes! The agent walked me through the entire process of backup withholding and explained exactly what documentation I needed to keep. They confirmed that having the contractor write "Applied For" on the W-9 was correct and gave me specific instruction on how to report everything on my tax forms. Saved me so much time and stress compared to trying to figure it out from confusing IRS publications.

I feel like I need to post a follow-up here. So after complaining about Claimyr sounding too good to be true, I was desperate enough to try it. I'm honestly shocked that it worked exactly as advertised. I had been trying to reach the IRS for THREE WEEKS about my contractor without an ITIN situation. Using Claimyr, I got through to an agent in about 20 minutes. The agent confirmed all the backup withholding info others mentioned here and gave me specific instructions for my situation. The agent even told me about Form 1042-S which might be relevant in my case since my contractor is a nonresident alien. That's something I hadn't even considered and wasn't mentioned in any of the online advice I found. Sometimes you really do need to talk to an actual IRS person to get the right answers.

Another approach that nobody mentioned yet - if your contractor is in the process of getting legal status and will have an ITIN soon, you could potentially file for an extension on your taxes. This would give you until October 15th to file, which might give your contractor enough time to get their ITIN. This doesn't solve the backup withholding issue for payments you've already made, but it could help simplify the reporting if you can wait for their actual number rather than having to amend returns later.

I think everyone's overcomplicating this. I've been in this exact situation a few times, and here's what I did: just file the 1099 using "000-00-0000" for now, then later file an amended/corrected 1099 once they get their ITIN. The most important thing is to show you're making the effort to report all payments properly.

I went through this exact situation last year and want to add some practical tips that helped me avoid mistakes. First, document EVERYTHING - keep copies of the W-9 with "Applied For" written in the TIN field, records of when your contractor applied for their ITIN, and all correspondence about the backup withholding. Second, when you start the 24% backup withholding, make sure to issue your contractor a written notice explaining why you're withholding and that it's required by law. This protects both of you if there are questions later. One thing that caught me off guard was that you need to deposit the withheld taxes using Form 8109 or EFTPS just like regular payroll taxes - you can't just hold onto the money until year-end. The IRS expects these deposits on their normal schedule. Also, keep in mind that once your contractor gets their ITIN and provides a corrected W-9, you can stop the backup withholding going forward, but you'll still need to issue the 1099-NEC showing both the total payments and the amount withheld for backup withholding.