Do You Need a W‑9 From Every Vendor or Contractor?

Not sure if you really need a W‑9 from that vendor you just paid? It’s a common question, and skipping it can lead to IRS penalties or filing headaches down the line. Many small business owners aren’t clear on when to request a W‑9, what to do with it, or why it’s such a critical part of year-end reporting.

In this guide, we’ll cover when a W‑9 is required, how to handle it correctly, and the compliance mistakes small business owners can’t afford to make.

What's the Difference Between a W-9 and 1099?

Before we get into whether you should collect a W-9 from every vendor, let’s clear up one common point of confusion. Though W-9s and 1099s work together, they serve very different purposes, they serve very different purposes. You collect a W‑9 to get the vendor’s tax details, such as their name, address, and Taxpayer Identification Number (TIN). Then, at year-end, you use that information to prepare and file a 1099‑NEC, if it’s required.

In short:

• W‑9 = Info you collect upfront
• 1099 = Info you report later using the details provided on the W-9

Do You Need a W‑9 From Every Vendor?

Yes. If you pay someone for services and they’re not your employee, you should have a Form W-9 on file, even if you’re unsure whether those payments will exceed the reporting threshold.

For 2025, businesses must issue a Form 1099 when total payments to a vendor reach $600 or more in a calendar year. Beginning with tax year 2026, that threshold rises to $2,000 under the One Big Beautiful Bill Act (OBBBA) and will adjust annually for inflation. Learn more about tax highlights in the OBBBA.

The rules around filing may change, but good documentation never goes out of style.

Use Form 1099-NEC to report payments for services performed by nonemployees (like contractors, freelancers, or other vendors). Use Form 1099-MISC for other types of payments, such as rent, prizes or awards, legal settlements, or certain medical and healthcare payments.

Collecting a W-9 ensures you have the correct taxpayer information to prepare accurate 1099s at year-end. W-9s are generally required when you’re paying for services, not goods. So, if you’re only purchasing parts or materials with no services provided, a W-9 usually isn’t necessary.

That said, it’s not always clear who qualifies for an exemption. Some vendors may be corporations (and therefore exempt from 1099s), but you won’t know unless you collect a completed W-9. The form shows how the vendor is taxed so you can determine whether their payments need to be reported on a 1099-NEC.

Who Needs to Complete a W-9?

• Independent contractors and freelancers providing services to your business
• Landlords you pay rent to (if they’re individuals or partnerships)
• Attorneys receiving legal fees or settlements, regardless of entity type
• Consultants and professionals (e.g., accountants, designers, marketing firms or specialists)
• LLCs or sole proprietors paid for labor, design, consulting, or marketing
• U.S.-based vendors that might be exempt but need to certify their status

• Even if they may be exempt, request a W‑9 from vendors who:

• • are C Corporations or S Corporations, and
  • who claim an exemption from backup withholding or 1099 reporting.

What About Foreign Vendors?

If you’re paying a vendor based outside the U.S.,  don't request a W‑9. Instead, they’ll need to complete Form W‑8BEN or another W‑8 form, depending on their entity type. These forms help determine whether U.S. withholding tax applies to the payment.

🔎Is that vendor really an employee in disguise? Read our article on employee misclassification.

When Should You Request a W-9?

Request it before the first payment, not at year-end. This ensures you have the vendor’s correct information before issuing a 1099 and prevents missing forms or delays in January. It’s also much easier to get this information before making a payment than after a vendor relationship ends.

You can collect W-9s electronically using tools like QuickBooks, BILL, or payroll portals. These digital options are secure and automatically store forms for future reference.

Making this part of your onboarding process for vendors helps you stay organized and eliminates awkward follow-ups or year-end surprises.

Should I collect a new W-9 every year?

You don’t need to request a new W‑9 annually. However, if the vendor changes their name, tax ID number, or business structure, you’ll need an updated form. Best practice: Request a new W‑9 every few years to keep your records current, even if nothing appears to have changed. 

You can download the official IRS Form W‑9 (PDF) directly from the IRS.

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

Let's say you hire a freelance graphic designer and pay them $2,500 over the course of the year, but you never collected a W‑9.

When January rolls around, you realize you don’t have the tax ID you need to file their 1099-NEC. That simple oversight can lead to:

• A $60–$310 penalty per form, depending on how late you file or if you fail to file at all
• Additional IRS penalties if you can’t show you made a real effort to request the W‑9
• Backup withholding requirements: If you fail to file a required 1099-NEC, the IRS may require you to withhold 24% of all future payments (and potentially send in what you should have withheld earlier)

Even if the mistake was unintentional, the IRS rarely waives these penalties just because you didn’t know better.

🔎For more on this, watch: How 1099s Help Your Small Business Save Money →

Should You Validate the W‑9 You Collect?

Yes, and here’s why: incorrect W‑9 details can lead to rejected 1099s, IRS penalties, and/or backup withholding requirements.

Use the IRS's free TIN Matching Program to confirm that the Taxpayer Identification Number (TIN) and vendor name match. Validating W‑9s before year-end helps you avoid filing errors, mismatched records, and unnecessary penalties.

What if a vendor hasn’t received their TIN yet?

If they’ve applied for a TIN but haven’t received it, they can write or type Applied For in the TIN field of the W‑9. They must then provide the actual number within 60 days to avoid backup withholding.

How To Handle and Store W‑9 Forms

W‑9s contain sensitive information like Social Security numbers or Employer Identification Numbers (EINs), so they need to be stored securely.

1. Keep W‑9s in a secure, encrypted location, whether that's a secure file system, cloud storage, or accounting platform. 
2. Avoid sending W‑9s over unprotected email.
3. Never submit W‑9s to the IRS. They’re for your records only,
4. Use the W‑9 to complete 1099-NEC forms during tax season.
5. The W‑9 should be signed by the vendor or a responsible party, typically the business owner or someone authorized to sign tax documents.
6. Hold on to W‑9s for at least four years after your last payment to that vendor.

If you’re working with Kaizen, upload your completed Form W‑9 to your Kaizen Staff Accountant through our secure client portal. As part of our monthly accounting work, we’ll help identify vendors who may require a W‑9, so you’re covered at 1099 time.

Common W-9 Mistakes

Even experienced business owners make small errors that create bigger problems later. These simple oversights can lead to backup withholding, late filings, or hours spent chasing forms at tax time.

• Paying vendors before collecting their W-9.
  Always request the form before issuing the first payment so you’re not scrambling at year-end.
• Accepting incomplete or outdated forms.
  Make sure every required field is filled out, including the tax classification, address, and signature.
• Relying on handwritten forms.
  The IRS does accept handwritten W-9s, but they’re often hard to read and prone to data-entry errors. Use typed, digitally signed versions whenever possible for clean, legible records.
• Failing to update records.
  Request a new W-9 if a vendor changes its name, address, or business structure.
• Not building W-9 collection into onboarding.
  Include W-9 requests in your vendor setup process so every new contractor is compliant from the start.
• Skipping follow-ups.
  If a vendor forgets or refuses to send their form, pause payment until it’s complete. You’re responsible for backup withholding if you don’t have a valid W-9 on file.
• Disorganized recordkeeping.
  Store W-9s securely in your accounting or payroll system so they’re easy to access when preparing 1099s or responding to IRS requests.

Even simple forms like the W-9 can create unnecessary hassle if overlooked. Collecting them early, reviewing them carefully, and keeping them organized will make your year-end filings far smoother.

Stay Organized and Compliant

W-9s might seem simple, but getting them right is essential. Staying consistent with how you collect, verify, and store vendor information helps prevent missing forms and IRS issues.

Want peace of mind knowing your business is compliant and organized year-round?
Schedule a discovery call to learn how Kaizen helps business owners stay on top of reporting requirements, file taxes on time, and keep their financial records accurate and secure.