As part of the outsourced accounting service provided to our customers, we collect Form W-9 from vendors while performing our accounts payable procedures.
Many vendors and independent contractors don’t understand the Form W-9 rules and refuse to provide us with a W-9. By not providing a Form W-9, vendors put themselves and our customers at risk.
The tax code is long and confuses many small business owners. So, here is what you need to know about Form W-9, so you can stay in compliance with IRS rules and not put your business at risk.
What is a W-9?
The W-9 is a form to request taxpayer information. The full name of the form is “Form W-9, Request for Taxpayer Identification Number and Certification” and the Internal Revenue Service provides it.
Business owners are responsible for collecting a W-9 from their vendors and individuals (referred to as the “payee.”) Using the form; payees provide their taxpayer information such as taxpayer ID number, entity type, and address. The payee is required to sign the form certifying that the information provided is correct.
The IRS requires the payee return a W-9 to the person or business requesting it (often referred to as the “payor.”)
A Simple Rule to Follow
We have a straightforward rule we share with our customers to stay compliant with IRS rules about W-9:
Provide a W-9 when requested by a payor and collect a W-9 before sending payment to a payee.
It’s that simple.
W-9 Not Provided
If a vendor refuses to provide a W-9, technically you should deduct a backup withholding from their payment. Here’s the exact wording from the form:
”If you do not return Form W-9 to the requester with a TIN [tax identification number], you might be subject to backup withholding."
The backup withholding rate, at the time of this writing, is 28%. Unfortunately, you don’t get to keep the backup withholding because you are required to remit it. This withholding places an administrative burden on your business, so it's better to collect the form from the vendor.