W-9 Requirements for Small Business Owners

As a small business owner, you already juggle plenty. The last thing you need is unexpected penalties at tax time. One simple but important step to protect yourself is collecting Form W-9 from your vendors.

It’s not just paperwork; it’s the foundation for filing accurate 1099s and staying in compliance with the IRS.

Let’s walk through when you need a W-9, how to handle it, and the mistakes you’ll want to avoid.

When Do You Need a W-9?

If you pay an individual, sole proprietor, or certain LLCs $600 or more in a calendar year for services, you need a W-9. This ensures you have the right information to issue a Form 1099-NEC or Form 1099-MISC at year-end.

W-9s are usually for services, not goods. For example:

Freelancers, consultants, or independent contractors
Single-member LLCs providing services
Attorneys (always, no matter their entity type)
U.S.-based vendors certifying they’re exempt

Payments made using a credit card, PayPal, or another payment processor don’t require a 1099; the processor reports those.

Pro tip: Even if a vendor may be exempt, request the W-9 up front so you know for sure.

What About Foreign Vendors?

For vendors outside the U.S., skip the W-9. They’ll need a Form W-8BEN or another W-8 depending on their setup. These forms determine whether U.S. withholding tax applies.

Form W-8BEN (IRS)

W-9 vs. 1099: What’s the Difference?

W-9 = Info you collect upfront.
1099 = Info you report later.

You gather the vendor’s tax details on the W-9 (name, address, Taxpayer Identification Number), and at year-end, use that information to file the 1099, if required.

What Happens If You Don’t Collect a W-9?

Let’s say you paid a graphic designer $2,500 but never got their W-9. At filing time, you’re missing their TIN. Now you’re facing:

A $60–$310 penalty per missing form (depending on how late you file)
Possible backup withholding (24% of future payments)
The IRS rarely waives these penalties just because you “didn’t know.”

Don’t wait until January, collect W-9s at onboarding.

How to Handle W-9s

Request before making payment
Store securely (not over regular email)
Keep them for at least four years after your last payment
Use the IRS TIN Matching Program to confirm info matches
Download the latest Form W-9 (PDF) directly from the IRS

If a vendor hasn’t received their TIN yet, they can mark “Applied For” but must update you within 60 days.

Final Tips for Staying Compliant

Build W-9 collection into your vendor onboarding
Follow up quickly if a vendor hasn’t provided one
Request an updated form if their name, business structure, or TIN changes
For multi-state businesses, check state-specific filing rules too

Useful IRS Links

Bottom line: Collecting and securing W-9s may feel like a small step, but it saves you from big headaches at tax time. A little organization now makes year-end smoother, keeps you compliant, and helps you avoid costly penalties.

Need Help Managing 1099s?

Collecting W-9s is only the first step. Filing accurate 1099s on time can still feel overwhelming, especially when you’re balancing everything else that comes with running a business.

That’s where our 1099 Vendor Payment Reporting and Compliance Management service comes in. We handle the details so you don’t have to:

Notify you of vendors we believe are reportable
Securely store vendor W-9s in our client portal
Track annual payments for each vendor
Prepare and e-file 1099-NEC forms with the IRS (by the January 31st deadline)
Prepare and e-file state 1099 forms where required
Share copies of all filed 1099s through our secure portal
Provide documentation showing submission dates to vendors and the IRS

Limitations:

We do not file 1099s for exempt vendors (e.g., most corporations)
We do not file 1099s for vendors paid via PayPal or Venmo (these processors handle reporting when you use the “goods and services” option)
You are responsible for supplying vendor W-9s, though we can request them on your behalf

You save time, reduce stress, and lower the risk of IRS penalties for incorrect or late filings.