I have a department that is paying research participants ($25 or less). Some participants do not wish to provide their SSN. I refuse to make a payment without a SSN or FEI. Is there legal backup for my stance?


There is not a legal backup for requiring SSNs or FEINs. The only requirement in your situation is that you must issue a 1099 for any participants who receive over $600 of payments from your research department. The request for a certified taxpayer ID on the W-9 is considered a good business practice to ensure that you have the reporting information on hand to submit accurate 1099 information returns. You might want to analyze how often the participants reach the $600 limit (they would have to participate at least 24 times during a calendar year). What you want to avoid is the penalties and interest that can occur if you are not complying with proper reporting to the IRS. As our overview article about obtaining certification of a taxpayer ID indicates: "The penalty for failure to furnish a correct TIN is $50 unless the person can show that it was due to "reasonable cause" and not to "willful neglect." The civil penalty for making false statements on the W-9 with no "reasonable basis" and no backup withholding results in a $500 penalty."

For many companies, it is a policy to get a certified taxpayer ID no matter what amount is paid. This is done to avoid the real cost to the business from the administration of figuring out who meets the threshold and then trying to get an SSN or FEIN before the annual filing. Depending on the type of error and negligence on behalf of the company, you could end up with thousands or even hundreds of thousands of dollars in penalties. Having a certified taxpayer ID Form W-9 on file gives evidence to the IRS that you have taken reasonable care to get accurate information and can go a long way toward avoiding penalties. You might do an analysis of the potential penalties based on not obtaining SSNs or FEINs and resulting in incorrect filings. Giving some historical data could help with your position, if you can show that the research department has reached the $600 threshold with several participants.

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