So, you’re a contractor and you hire a bunch of contractors. You need to get W-9’s from them with their social security numbers or EIN’s. So, you do that, but let’s say, they give you false numbers. When you file their 1099’s, the IRS may contact you saying that you need to back-up withhold 24% from their gross payments.

DON’T IGNORE THAT LETTER. Failure to do that incurs liability for your company to the extent of the back-up withholding. Now if you’re lucky, the offending contractor actually paid their taxes and reported the income. If so, then you have a defense that the IRS cannot collect a tax twice. But if they didn’t you’re likely to face a pretty big liability.

And if these guys want their 24% back, they can always file a tax return and get it back. Most won’t, because 24% is less than what they really owe.