3 Tips to Get W-9s From Vendors

Want to know what impresses accountants? Vendors who send their Forms W-9 before they’re asked. Also, calculators with color screens.

What are W-9s and why do I need them?

Form W-9 gathers the necessary information about a vendor for a business to prepare contractor tax forms at the beginning of each year.

When your business hires an independent contractor or another company to provide a service, it’s best practice to have them fill out a Form W-9. It collects the vendor’s name, address, business type, and taxpayer identification number (TIN), and it certifies an individual’s or entity’s legal eligibility to work.

Form W-9 provides you with a vendor’s name, address, tax ID number, and taxation status. Source: irs.gov.

At the beginning of every year, businesses issue 1099 tax forms to third parties who were paid $600 or more for rendering services in the previous year. In some cases, the threshold is even less. You need the information from a vendor’s W-9 to fill out their 1099.

If you hire a painter to design a mural in your office, you’ll ask them to fill out a Form W-9 before starting the job. The following January, you’ll send the painter, their state tax authority, and the IRS a Form 1099-NEC reflecting the payment. The painter will then use the 1099 when filing their independent contractor taxes.

Form W-9 also reveals a vendor’s run-ins with the IRS that would require you to withhold a portion of the payment for taxes. Unless you’re told otherwise through a W-9 or an IRS letter, non-employee workers are fully responsible for paying their taxes.

If your contractor strikes out the second item on Form W-9, backup withholding is required. Source: irs.gov.

When do I need to ask for a W-9?

Before you start contracting with a person or company to provide services to your business, ask them for a Form W-9. The information on a completed W-9 reveals whether paying them triggers a 1099 filing.

The most common reason to file a 1099 is for payments to independent contractors and businesses that provide services, including freelancers, consultants, attorneys, and accountants. Other fees, like rent paid to non-corporate landlords and royalty payments, also require a 1099. Check out this IRS page for a complete list.

There are several types of 1099 forms, most prominently 1099-NEC and 1099-MISC. 1099-NEC is for non-employee compensation, like payments to contractors. Rental and royalty payments warrant the 1099-MISC.

It’s best practice to start every vendor relationship by asking for a W-9, even if you don’t expect to pay that person or company $600 or more during the year. You don’t want to find yourself in January without all the documentation you need to complete and file your 1099s.

When don’t I need to ask for a W-9?

Your reflex should be to ask for a W-9 from any non-employee whom you’re paying for services. However, you don’t need to collect a W-9 from companies when there’s no chance you’ll need to file a 1099.

For example, you don’t need to file 1099s for payments to businesses taxed as C corporations or S corporations, except for attorney payments and a few other circumstances. Since LLCs may be taxed in one of several ways, you need to pay close attention to how they’re taxed when filing 1099s. Payments to tax-exempt organizations and banks don’t warrant 1099s either.

By this logic, you don’t need to ask for a W-9 from a publicly-traded company since they’re all corporations, with public EINs to boot.

You also don't need a W-9 before buying merchandise in most cases. However, you need a W-9 before spending $5,000 or more for consumer products that you plan to resell outside of a “permanent retail establishment,” like from your home. It’s best to consult with an accountant if you suspect your business activity roughly fits this description.

W-9s aren’t required when paying for:

• Reimbursements to employees
• Telephone services
• Freight
• Storage

Tips for getting W-9s from vendors

Some vendors might be reticent to fill out a W-9. Here’s what to do when you need a W-9 from a new contractor or business.

1. Send a copy of Form W-9 to the vendor

Make it easy to fill out and return the Form W-9 by sending your vendor a copy to their email or physical inbox.

You can download Form W-9 from the IRS website. The agency occasionally updates the form, so make sure you have the most recent version. If you’re sending a W-9 digitally, encrypt the document so only the rightful users can view it.

2. Explain why you’re asking for a W-9

It’s reasonable for a contractor to be tentative about sending a W-9 to you if you’re a stranger. You’re asking for sensitive information, such as a Social Security number (SSN), so it helps to share with them why you need it and how you will store and use it.

Be transparent when asking for a completed W-9. Explain that you suspect a business relationship with the vendor might result in a required Form 1099 filing, at which point you’ll need the information on the W-9. Mention your secure document management system that allows only key employees access to personnel files.

3. Refuse to sign contracts without a W-9

If a potential vendor refuses to send you a W-9, it’s within your rights not to work with that vendor. I’d recommend avoiding any person or entity who can’t furnish a W-9 when you have reasonable grounds to ask for one.

Many companies have instituted policies that require a completed Form W-9 from every third party before starting work.

Let’s get in form-ation

Making Form W-9 part of your contractor onboarding prevents a frenzy in January to track down people you engaged for services last year.

Once you receive a completed W-9, store it in your accounting software under the vendor’s profile.