Editorial · February 5, 2019
Form W-9 for Vendors: When and Why to Collect It
Form W-9 for vendors is a one-page form that asks a vendor for a legal name, a business type and a taxpayer identification number (TIN). You ask for it before you pay. Then you have what you need if the IRS wants you to report the payments on a Form 1099. The IRS released the latest version of the form in October 2018.
What Form W-9 does
The IRS says to use Form W-9 to ask a U.S. person for a TIN. A U.S. person includes a citizen, a resident alien and a company created under U.S. law. For most people the TIN is a Social Security number. For a business it is often an employer identification number.
The form also holds a signed statement. The vendor says, under penalties of perjury, that the TIN is correct. The vendor also says it is not subject to backup withholding and that it is a U.S. person. For some payments the vendor does not have to sign, but it must still give a correct TIN.
You do not send the form to the IRS. You keep it. It backs up the names and numbers you put on the information returns you file.
When to ask for it
Ask before the first payment. That is the easiest time, because the vendor wants the job and the payment. Waiting until January means chasing people who may have moved on.
A good habit is to make the form part of vendor setup. A new vendor does not get paid until a signed W-9 is on file. You can also request the form from current vendors who never sent one. Do it now, early in the year, and not in the last week of December.
The IRS lets you collect the form electronically, including by fax. The system has to show that the person who submitted the form is the person named on it. It must also be able to print a copy if the IRS asks. Many small businesses simply use a secure scan or the IRS fillable PDF.
Why it matters for 1099 filing
If you pay a person who is not your employee for services in your trade or business, you may have to file Form 1099-MISC. The IRS instructions set the filing line at $600 or more for services in a year. Without a W-9, you may not have a correct name or TIN to put on the form.
Timing matters too. For payments made in 2018, the IRS says Form 1099-MISC must be filed by January 31, 2019, if it reports nonemployee compensation in box 7. Other 1099-MISC forms are due February 28, 2019, on paper, or April 1, 2019, if filed electronically. If you are reading this after the January date and you missed a vendor, gather the missing forms now and file as soon as you can.
The IRS charges a penalty per return for late or incorrect filings. For returns due in 2019 the amounts are $50 if you file within 30 days of the due date, $100 if you file after that but by August 1, and $270 after August 1 or if you never file. Missing or wrong TINs can also lead to penalties.
What happens if a vendor will not give it
Some payments are subject to backup withholding. When a payee will not give you a TIN, the IRS says you may have to withhold 24 percent of reportable payments and send it to the government. The instructions say the rate is 24 percent for reportable payments. If you fail to collect it when you should, you may become liable for the uncollected amount.
One rule trips people up. A vendor can write "Applied For" on the form if it is still waiting for a TIN. The IRS gives a 60-day grace period only for interest, dividends and certain payments on readily tradable instruments. Any other reportable payment, such as nonemployee compensation, is subject to backup withholding right away, even if the vendor has applied and is waiting.
Corporations are generally exempt from backup withholding on payments for services. There are exceptions, including medical and health care payments and attorneys' fees. Not every vendor is exempt, so do not guess. Let the form tell you.
A short checklist
- Use the current form. The October 2018 revision is the one on the IRS website now.
- Get it before you pay. Make a signed form part of onboarding.
- Check the basics. The name, the business type, the TIN and the signature should all be there and should agree with each other.
- Keep it safe. A W-9 holds Social Security numbers. Store it where only the people who file your returns can see it.
- Do not send it to the IRS. Use it to prepare your own returns.
- Foreign vendors are different. The IRS says to ask a foreign person for the right Form W-8 instead.
- Test your records. The IRS offers TIN Matching to some payers so they can check name and number pairs before filing.
This article is general information, not tax advice. If you are unsure how a payment is reported, ask a tax professional.