Issuing a 1099 to someone without a Social Security Number

March 9, 2012 19:20 by Consumer Ed

Dear Consumer Ed: 

How can you issue a 1099 to a contractor who will not provide his Social Security number or his Federal ID number?  Can you send the 1099 to the IRS without this information?

Consumer Ed says: 

It appears that not all contractors are required to have a Social Security Number (SSN) to work in the United States.  Many are issued a Tax Identification Number (TIN) by the IRS.  The TIN may be used on Form 1099 instead of the SSN.  If the contractor does not provide a TIN or SSN, leave the box for the TIN or SSN blank on the Form 1099.  The IRS may impose a penalty if a 1099 form is submitted without a TIN or SSN.  However, the penalty will not apply if you can show the lack of information was due to an event beyond your control or due to significant mitigating factors.  You must also be able to show that you acted in a responsible manner and took steps to avoid the omission of this information, such as by writing the contractor to ask for this information.

Before proceeding, you should contact the IRS at 1-800-829-4933 to ensure that you have a full understanding of these requirements. 

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Work-at-Home Jobs

November 4, 2010 08:25 by Consumer Ed

Dear Consumer Ed:

My unemployment insurance is about to run out.  I keep seeing these on-line job offers where you can make a lot of money working from home.  They ask you to pay a fee for training and certification.  How can I make sure I am not wasting my time and money?

Consumer Ed says:

You’re wise to be wary of these offers. Many of the work-from-home jobs advertised are scams.  First off, do not send money! Legitimate employers won’t ask you to pay them for the promise of a job, and it’s against the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) for employers to charge employees for training.  If you are interested in working from home, make sure you research the position very carefully to make sure it’s on the up-and-up:

  • Find out specifically what you will be doing – ask about every step. 
  • How will you be paid?  Will you make a salary or will they provide a commission?
  • Who will pay you and when will you get paid?
  • Be very suspicious of guarantees of wealth, especially when the ads say “no experience required” or “will train”. If it sounds too good to be true, it probably is!
  • Get references and ask those people if they have been pleased with the company.
  • See if the Better Business Bureau has received complaints about the company, but be aware that a lack of complaints doesn’t guarantee that a company is legitimate. You may also want to do an Internet search for the company name with the word complaints.

While some work-at-home jobs are legitimate, you’re probably better off networking with business acquaintances and friends and exploring traditional job listings in newspapers and reputable online employment sites.

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Network marketing programs

November 4, 2010 08:19 by Consumer Ed

Dear Consumer Ed:

I was approached after church by a friend to join a network marketing program. I’m told I can make a lot of money if I work hard at it. My only concern is that I have to pay $75.00 up front to join. Is this legitimate?

Consumer Ed says:

You should take a close look before paying any money. Network marketing, also known as multi-level marketing, is a marketing strategy where a company will recruit individuals to act as promoters for the company and its products.  The promoters are responsible not only for selling the company’s products themselves, but also for recruiting new individuals who will also act as promoters for the company. The goal of network marketing is to create a large marketing and sales force, where individual promoters are paid commissions based on their own sales and the sales of those they recruited into the network.  Mary Kay Cosmetics and Amway are popular examples of companies that use network marketing. 

Obviously, each system is different, but companies that use network marketing are often the subject of much controversy.  Before joining a network marketing program, you should gather as much information as possible about the company and its compensation structure.  First, find out where in the organization you would start, and request a breakdown of the average commission and bonus payout to individuals at each level of the organization.  If the company will not provide this crucial information, it may be a signal that they are concealing high loss rates.  Second, find out generally how much time and money you would have to spend, in addition to the introductory fee, in order to sell enough products and recruit enough new promoters to turn a profit.  Again, companies should provide information on this subject, and if they are unwilling to do so, it should be another red flag. 

You should also consider where you will go to recruit new promoters for the company.  If you hope to recruit among your fellow church members, consider that you will already be competing with the person who recruited you and anyone else he or she may have recruited at church.  Similarly, you might run into similar competition at your child’s school, your local community center, or even among your friends and neighbors.  Furthermore, the smaller your community, the more difficult it will be to keep coming up with new, untapped sources.  In fact, even if you are initially successful in finding new recruits, consider that each person you recruit today will be competing with you for new recruits tomorrow.  The basic point is that recruiting new promoters into the organization will only get more and more difficult as your community becomes “saturated” with other promoters.  This is why the Federal Trade Commission has repeatedly warned against network marketing systems that provide greater incentives for recruitment than for selling products.  These recruitment-focused programs comprise a majority of all network marketing systems, and in most cases, you will only begin to see returns on your initial investment after a long, aggressive recruiting campaign.  As recruitment becomes more and more difficult, the company typically does not have enough revenue to pay commissions to its many members.  If that happens, those who have not had enough time to recruit enough new promoters will typically lose their investment.

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