The W-9 is an official form furnished by the IRS for employers or other entities to verify the name, address, and tax identification number of an individual receiving income. Without the completed W-9, a business cannot issue the appropriate 1099 which is reported to the IRS. Collecting W-9s then is critically important to operating a successful business and staying on the right side of IRS code.
#1 Rule for W-9 collection
Get the W-9 upfront! No W-9. No Work.
Top Five reasons W-9s don’t get collected
- W-9 request doesn’t get sent in the first place because it’s a pain
- Vendor is confused by the W-9
- Vendor loses, doesn’t complete, or doesn’t return the W-9
- Vendor doesn’t have an incentive to complete the W-9 (how about 24% backup withholding)
- “Oh, I’ll deal with it in January.”
Why collecting W-9s should matter to you
- The IRS is tracking ‘nonemployee compensation’ on a new Form 1099-NEC starting in 2020
- If you don’t have W-9s you can’t issue 1099-NECs to vendors or file them with the IRS
- You are required to withhold 24% (Backup Withholding) in federal taxes from vendors who haven’t provided a W-9 and report and deposit the funds to the IRS
- The penalty for not filing / incorrect 1099s ranges from $50-$500 PER 1099
- Your vendors are also subject to penalties for not providing you with a W-9
I need help collecting W-9s
- The IRS allows the use of electronic signatures on W-9s and other tax related forms https://www.irs.gov/pub/irs-pdf/iw9.pdf
- Using Adobe Acrobat to request signatures and fillable forms saves the hassle of physically collecting/receiving W-9s https://acrobat.adobe.com
- You can also use applications like https://payable.com/