Key Takeaways
- Keep every contractor’s Form W9 on file before the first payment.
- If your contractor won’t give you a W9, follow the three-step written request process to prove due diligence.
- Use the IRS TIN Matching tool before filing your 1099s to verify name/TIN combinations and ensure your records are correct.
- Start backup withholding (24%) if the contractor won’t provide a Form W9 to avoid your business being held responsible for the tax.
The process of collecting Form W9s is one of those “check-the-box” tasks every business has to do that usually goes: get, file, forget.
But I want to urge you today to pay a little more attention to your W9 process.
Here’s why I say that: Your W9 process is your best defense against costly IRS penalties.
By the time a missing or incorrect Taxpayer Identification Number (TIN) shows up in February (when you’re filing), it’s too late. Before year-end is when you have to build your paper trail.
How do I protect my business from penalties?
When the IRS issues a penalty for a missing or incorrect Taxpayer Identification Number (TIN), you need to show you did everything you could to get the required information.
What that means is your Washington business must show that you:
- Acted responsibly in requesting the W9, and
- The missing info was due to the contractor, not your failure to ask.
In other words, if you can show you followed the required solicitation rules, you can protect your business from the penalty.
But the IRS needs to see proof: dates, copies of requests, and records showing your follow-ups. So, make sure to keep all W9-related emails, mailed requests, and signed forms for at least four years after the last 1099 for that vendor.
What can I do now to prevent W9 penalties?
You can actually check if your contractor’s W9 info matches IRS records before filing any 1099s with the TIN Matching Program.
You simply upload your payee’s name and TIN through the IRS e-Services portal, and the system tells you if it’s a match. If it is, you’re protected. If not, you can correct it.
There are two ways you can use it:
- Interactive Matching: Verify up to 25 vendors at a time, instantly. Great for onboarding.
- Bulk Matching: Upload thousands at once (usually for year-end validation).
A successful match is powerful evidence of due diligence for your DMV business, and significantly reduces the chance of a penalty later (though not absolute immunity). Make sure you pair it with documented solicitations.
What if my contractor won’t give me a Form W9?
The IRS expects you to follow the three-tiered solicitation rule:
- Ask for the Form W9 before you pay the contractor.
- If they still haven’t given you a valid TIN, send another written request by December 31 of that same year.
- Still missing? One final written request by December 31 of the following year.
If they still haven’t provided a valid TIN, you must immediately begin backup withholding: keeping 24% of their payments and sending it to the IRS. If you skip this step, the IRS will hold your business responsible for that 24% tax.
Each solicitation also must be documented, including the date, method (email, mail, system request), and content. This documentation is your proof if you ever need to dispute a penalty.
Pro move: Don’t make payments to the contractor until the W9 form is received so you can avoid this headache altogether.
FAQs
“What happens if I pay a contractor before getting a Form W9?”
You must immediately start backup withholding at 24%. If you fail to do this, your business will be held responsible for that tax amount.
“Do I need to send a W9 to every vendor or only contractors?”
Only vendors you pay for services (not goods) generally need a W9. Think freelancers, consultants, web designers, etc.
“What’s the penalty amount for incorrect or missing 1099s?”
As of 2025, penalties range from $60 to $310 per form, depending on how late or incorrect the filing is.
“Can I email a W9 request, or does it have to be mailed?”
Email is fine, as long as it’s secure and you can document when and how it was sent. The IRS cares more about the paper trail than the method.
“How long should I keep old W9s?”
Keep them for at least four years after the last 1099 was filed or after the business relationship ends – whichever is later.
“Do LLCs always need a 1099?”
Not always. The W9 is key; it specifies how the LLC is taxed (as a disregarded entity, partnership, or corporation), which determines the 1099 requirement.
Why You Should Act Now
Here’s why I’m putting this in front of you right now:
- Annual solicitation letters for missing W9s are due by December 31.
- Running a bulk TIN Match in October or November gives you time to correct errors before 1099 season.
- You still have time to update your accounting software to automatically flag noncompliant vendors and enforce the 24 percent withholding rule in January.
By knocking out all three before year-end, you’re essentially bulletproofing your business against one of the IRS’s most common small business penalties.
So, if you’re not sure whether your vendor files are airtight, now’s the time to check. My team and I can help you run the TIN Match, set up an airtight W9 documentation process, and make sure your accounting software is ready for year-end.
calendly.com/cfosg_growth/sales-consultation