Quit Making 1099s So Painful

The Importance of W9s

Most business owners have heard of 1099s and have come to recognize the pain in January of collecting information for and issuing them. However, there is a process that the IRS says every business should follow that greatly reduces the stress of the 1099 season. The cornerstone of this process is the Form W9.

What is a W9?

 A W9 is simply an information gathering form that a vendor or contractor gives a company. The W9 form includes their name, address, EIN or Social, and the type of entity they are. Most importantly, it also lets you avoid being on the hook for your vendors tax bill (backup withholding).

Who should I ask for a W9?

The simple answer is every vendor with whom you are doing business with and issuing payments. While you do not need to issue a 1099 to a vendor for products it seems that many vendor relationships can expand over time and suddenly you need this information. This is why we recommend building a process to require a W9 as part of your vendor onboarding process and make sure it is received before you issue payment.

What Is Backup Withholding?

Backup withholding is when you withhold 24% of the payments made to your vendor/contractor and submit this to the IRS on their behalf. This is required when there is an improper or missing EIN or social security number on the W9 form or you cannot get a W9 form. If you know you cannot get the W9 form or if you continue paying people after the IRS notifies you that the number is improper then you may be liable to pay the 24% on their behalf even though you paid the full amount of their invoice to them.

Easier ways to track and collect W9s

In the simplest of terms it is always easiest to collect a W9 before you pay someone as they have an incentive to provide it (getting paid). Once you have paid someone, you lose the leverage and W9s become much harder to get. We also like to have a system to request and track the W9s received. For this we recommend a software such as TrackW9 or a similar service. These softwares send an electronic W9 for your vendor/contractor to fill out and lets you see which ones have been completed and which ones have not. 

If you need help building your W9 process and making January smoother, call us.