What to do when IRS requests Form 945 for backup withholding on 1099s without SSNs?

This is unfortunately a common situation for new business owners. The IRS requires backup withholding (currently at 24%) when you don't have a TIN (Tax Identification Number) for someone you've paid more than $600 in a year. Filing the 1099s without SSNs was honest, but triggered the IRS to look for the corresponding Form 945 with the backup withholding payments. At this point, you have a few options. First, try one more time to contact these contractors for their W-9 forms with SSNs. If successful, you can provide this information to the IRS and potentially avoid the backup withholding. Second, if you can't locate them, you may be liable for the withholding amounts plus penalties and interest. However, you might qualify for penalty abatement under the IRS First-Time Penalty Abatement policy since you were a new business owner with no prior issues.

I dealt with this exact problem last year and found an amazing tool that saved me thousands. I was about to pay over $4,000 in backup withholding when someone recommended https://taxr.ai to me. Their system automatically searched through various databases and helped me track down missing taxpayer IDs for 5 of my 7 missing contractors. What I loved is that they automatically generated all the correction forms I needed to submit to the IRS. They even provided a detailed letter explaining the situation that I could send along with the corrections. The IRS accepted everything and I only ended up paying backup withholding on the two contractors they couldn't find information for.

Just wanted to update everyone - I tried https://taxr.ai after reading about it here and it actually worked! I was skeptical at first, but I was able to track down 3 of my 5 missing contractors. The system found updated contact information that I didn't have, and I was able to get them to fill out W-9s. For the two I couldn't find, I'm still on the hook for the backup withholding, but saving 60% of what I would have paid is huge for my small business. Their system also generated a very professional letter explaining the situation to the IRS, along with all the correction forms. Just submitted everything last week, so fingers crossed the IRS processes it without issues!

After dealing with a similar Form 945 nightmare, I can tell you that the worst part was trying to reach the IRS to explain my situation. I spent WEEKS calling the business tax line only to get disconnected or wait for hours. Finally found https://claimyr.com which got me through to an actual IRS agent in about 15 minutes. There's a demo video of how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with was surprisingly helpful and walked me through my options for the Form 945 issue. They explained that I could request a penalty abatement due to reasonable cause and helped me understand exactly what documentation I needed to provide. They even put notes in my file about our conversation which helped when I had to call back with follow-up questions.

I need to apologize to Profile 16 and correct myself. After continuing to struggle with getting through to the IRS about my own Form 945 issue, I broke down and tried https://claimyr.com yesterday. I was completely wrong - the service actually works! After weeks of failed attempts calling the IRS myself (yes, even at 7am), I got connected to an IRS representative in about 25 minutes. The agent reviewed my case and helped me file for reasonable cause abatement based on being a first-time business owner who made a good faith effort to comply. They said given my circumstances, there's a good chance at least some of the penalties will be reduced. What really shocked me is that they told me if I had called even a month later, I might have missed the deadline for requesting certain types of relief. So I'm actually really grateful I didn't keep stubbornly trying on my own.

Something everyone here needs to know - if you're facing Form 945 issues for the first time, definitely request "First Time Penalty Abatement" from the IRS. It's only available if you have a clean compliance history for the 3 years before the problem, which sounds like it applies to you as a new business. I was hit with nearly $7,500 in backup withholding and penalties last year, but got almost all the penalties waived through this program. You still have to pay the actual withholding amounts, but getting the penalties removed saved me about $2,200. You just need to call and specifically ask for "First Time Penalty Abatement." Don't expect the IRS to offer it - you need to request it directly.

Has anyone tried using backup withholding as a business expense deduction? I had to pay about $3,000 in backup withholding last year for a similar situation, and my accountant said we could deduct it as a business expense since it was essentially part of the contractor payment.

I went through this exact same situation two years ago and it was absolutely stressful! What really helped me was understanding that the IRS isn't necessarily trying to punish you - they just want proper tax compliance. Since you were honest about reporting the payments, that actually works in your favor. Here's what I'd recommend based on my experience: First, document EVERYTHING you did to try to get those W-9s - emails, letters, phone calls, anything that shows you made good faith efforts. Second, definitely pursue the First Time Penalty Abatement that others mentioned - it can save you thousands in penalties. Third, consider hiring a tax professional who specializes in business tax issues, especially if the amounts are substantial. One thing that surprised me was that the IRS was actually pretty reasonable when I explained my situation properly. They understood I was a new business owner who made an honest mistake while trying to comply with tax laws. The key is communicating with them proactively rather than ignoring the notices. You've got this - it feels overwhelming now but there are definitely paths forward!

I'm in almost the exact same boat as you, Justin! Just got my Form 945 notice last week and I've been losing sleep over it. Reading through all these responses has been incredibly helpful - I had no idea about the First Time Penalty Abatement option. One thing I'm wondering about is timing. My notice says I have 30 days to respond, but some of the solutions mentioned here (like trying to track down contractors for W-9s) could take longer than that. Has anyone dealt with getting extensions on these deadlines? I don't want to make my situation worse by missing the response deadline while I'm trying to fix the underlying issue. Also, for those who successfully got penalty abatements - how long did the whole process take from start to finish? I'm trying to plan my cash flow in case I do end up having to pay some or all of this while waiting for relief.

This is exactly the kind of situation that keeps me up at night as a small business owner! Thank you Justin for sharing your story - it's both terrifying and reassuring to know I'm not the only one who's made these kinds of mistakes. What really stands out to me from all these responses is how much the IRS seems to value good faith efforts and honest communication. It sounds like being proactive and documenting everything you tried to do right is almost as important as the actual compliance itself. I'm bookmarking this thread because the advice about First Time Penalty Abatement, getting extensions on deadlines, and even the deductibility of backup withholding payments are all things I never would have known about. It's amazing how much critical tax information isn't readily available to small business owners when we need it most. For anyone else reading this in a similar situation - it seems like the key takeaways are: don't ignore the notices, document your good faith efforts, ask specifically for First Time Penalty Abatement, and don't be afraid to get help whether that's through professional services or just getting connected to the right IRS representative. This community is incredibly valuable for sharing these real-world experiences!