We recommend that you have a W9 (or equivalent) on file for each vendor you do business with. In order to do this, we suggest that you request a W9 before your first payment is made to the vendor.
When it comes time to file a 1099-MISC for that particular vendor you will already have all of the required information on file.
What if I don’t request a W9?
It depends. If you don’t request a W9 from a vendor and you don’t make payments to the vendor then nothing happens. You technically don’t need it.
However, if you don’t request a W9 from a vendor and you end up making payments that total over $10 for royalty payments or $600 for most other payments in the tax year, you will be responsible for backup withholding. Backup withholding is a flat 28% of the payments made to the vendor. Meaning if the vendor earns $1,000, you would have to withhold $280 of that amount and pay it to the IRS separately. The vendor would then need to claim that there was backup withholding on a payment during the year and collect the balance from the IRS when they file their taxes. That’s a lot of extra administrative work that could be avoided if you simply had a W9 on file.
To avoid the need for backup withholding, and to avoid any penalties that may come your way, it’s best to have a W9 on file for all vendors.
Can’t I just request a W9 at the end of the year?
If you wait until the end of the year and only request a W9 from vendors who you have paid $600 or more to, you run the risk of not getting all of the information you need on time. If a vendor takes time off in January you may not hear back from them until February, when you’ve already missed the filing deadline.
Generally, your 1099-MISC forms will need to be filed within a month after the year ends (January). That doesn’t leave a lot of time to request the information from your vendors, verify the information, and then prepare the 1099-MISC for them.
What if I already have a W9 for my vendors?
That’s great! If you already have a W9 on file, the hard part is done already. You will want to verify that the information is still accurate every year before filing a form 1099 for your vendor.