The personal information noted on a completed form W-9 is necessary for payroll processing and payment reporting to the Internal Revenue Service. As a best practice, request a completed W-9 on your employee's first day of work and send a W-9 request to any new contractors. If a contractor won't comply, send a formal letter with a pleasant but firm request for a completed form.
Form W-9 Basics
A Form W-9 is an IRS document that details a taxpayer's name, address, federal tax classification, and Social Security number or employer identification number. The IRS doesn't mandate that businesses keep W-9s on file. However, businesses are required to collect and report the personal information listed on the form for all employees and for contractors they pay over $600 annually. Collecting a W-9 is a convenient way to do that. Because of this, a company should have a W-9 on file for each employee and contractor.
Requesting a W-9
To ensure you collect a W-9 from all employees, include a W-9 form in the mandatory first day paperwork for new hires. Require new employees to complete all paperwork on site and return it to a human resources representative by the end of the first day.
When you acquire a new contractor or vendor, enclose a Form W-9 with the initial contract. In a W-9 request letter, ask your vendor to complete and return the form as soon as possible. Consider implementing a policy to only pay vendors with a valid W-9 on file, and note this policy in the request letter.
If you have trouble getting a completed W-9 out of any employees or contractors, tactfully but firmly communicate that the W-9 is necessary before payment can be made. Explain to employees that the information on the form is necessary to process payroll and issue them paychecks. If a vendor doesn't return the W-9 within a week or two, send a second request letter to follow up. If you have a documented policy in place, remind the vendor that you cannot pay them without the form on file. The IRS requires you make a formal request for a W-9, so keep a copy of this letter on file.
If you don't have a W-9 for a vendor at the end of the year, you still need to report the payments to the IRS. Complete and send a Form 1099-MISC for the contractor and leave the social security number blank. The IRS will respond with a notice that the number is missing, which you must forward to the contractor along with a notice of backup withholding and another copy of a W-9. You're obligated to withhold taxes from future payments to this contractor -- currently, the withholding rate is 28 percent -- and the contractor will incur a $50 fee from the IRS.
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