Can I Issue a 1099 to Someone With an ITIN Instead of an SSN?

Businesses and individuals hiring independent contractors must ensure they meet tax reporting requirements. A common question is whether a Form 1099 can be issued to someone with an Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number (SSN). Understanding these rules helps avoid compliance issues.

While ITIN holders are not eligible for Social Security benefits, they must report income and pay taxes. This distinction affects how payments should be reported.

Basic 1099 Filing Rules

Businesses paying independent contractors must comply with IRS reporting requirements, primarily through Form 1099-NEC. This form reports nonemployee compensation of $600 or more in a tax year. The payer must collect the recipient’s taxpayer identification number (TIN) to ensure accurate reporting.

A valid TIN can be a Social Security Number (SSN), Employer Identification Number (EIN), or ITIN. The recipient’s name must match the TIN on file with the IRS to avoid processing issues or backup withholding. If a contractor does not provide a valid TIN, the payer may have to withhold 24% of the payment under backup withholding rules.

Form 1099-NEC must be filed with the IRS and provided to the recipient by January 31 of the following year. Businesses issuing 10 or more information returns must file electronically. Late or incorrect filings can result in penalties ranging from $60 to $630 per form, depending on the delay and whether the error was intentional.

ITIN Requirements

An ITIN is issued by the IRS to individuals who need a taxpayer identification number but do not qualify for an SSN. This includes nonresident aliens, resident aliens filing U.S. tax returns, and dependents or spouses of U.S. citizens or resident aliens. Unlike an SSN, an ITIN is strictly for tax reporting and does not grant work authorization.

For independent contractors who do not qualify for an SSN, an ITIN allows them to meet tax obligations. Businesses hiring these individuals must verify the ITIN before including it on Form 1099-NEC. The IRS recommends using the TIN Matching Program to confirm that the name and ITIN match IRS records before filing.

ITINs expire if not used on a federal tax return for three consecutive years. If a contractor provides an expired ITIN, the IRS may reject the return or impose penalties. Renewing an ITIN requires submitting Form W-7 with supporting documents, a process that can take weeks. Businesses should encourage contractors to check their ITIN status before tax season to avoid delays.

Withholding Obligations

Tax withholding is an important consideration when paying independent contractors, especially those without an SSN. U.S. citizens and resident aliens who provide a valid TIN are generally exempt from automatic withholding, but different rules apply to nonresident aliens.

For nonresident aliens, withholding may be required under Chapter 3 of the Internal Revenue Code. The standard rate is 30%, unless a tax treaty allows for a reduced rate or exemption. To claim a treaty benefit, the recipient must submit Form W-8BEN. Without this form, the full 30% withholding applies.

Backup withholding applies if a contractor fails to provide a valid TIN or if the IRS notifies the payer that the TIN is incorrect. In such cases, the payer must withhold 24% of all reportable payments and remit the amount to the IRS. These withheld amounts must be reported on Form 945, due by January 31 of the following year.

Submission Procedures

Ensuring accuracy in tax reporting starts with verifying the contractor’s details on Form W-9 or, for foreign individuals, Form W-8BEN. Errors in the name, TIN, or classification can lead to processing delays or IRS notices.

Businesses must determine whether to file electronically or on paper based on IRS thresholds. As of 2024, entities issuing 10 or more information returns must file electronically. The IRS Filing Information Returns Electronically (FIRE) system is the primary platform for e-filing, while the IRS Modernized e-File (MeF) system is used for certain tax forms. Paper filers must include Form 1096, summarizing the total number of forms and amounts reported.

Penalties for Errors

Mistakes in issuing Form 1099-NEC can lead to financial penalties. If corrected within 30 days of the due date, the penalty is $60 per form. Corrections made after 30 days but before August 1 increase the fine to $120 per form. Errors uncorrected beyond August 1 result in a $310 penalty per form. If the IRS determines a business intentionally disregarded filing requirements, the penalty rises to $630 per form with no maximum cap.

Errors often occur when incorrect TINs are reported, leading to mismatches in IRS records. If a contractor’s ITIN does not match the name on file, the IRS may issue a CP2100 or CP2100A notice, requiring the payer to correct the information or begin backup withholding. Repeated errors can increase IRS scrutiny. Businesses should use the IRS TIN Matching Program before submitting forms and keep detailed records of contractor information and filing confirmations.

When to Consult Professionals

Handling tax reporting for independent contractors with ITINs can be complex, especially when dealing with foreign individuals, withholding requirements, or IRS notices.

Certified public accountants (CPAs) or enrolled agents can help classify workers correctly, determine withholding obligations, and file corrections if needed. They can also assist in responding to IRS notices, such as backup withholding enforcement or mismatched TIN reports. Businesses working with multiple contractors or making international payments may benefit from consulting a tax attorney, particularly if tax treaties or foreign reporting obligations are involved.