The personal information of employees and contractors noted on a completed Form W-9 is necessary for payroll processing and payment reporting to the Internal Revenue Service (IRS). 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 with your request, send a formal letter with a pleasant but firm request for a completed form W-9.
The Basics of Form W-9
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 to whom the company pays over $600 annually.
Collecting a Form W-9 is a convenient way to collect this information about your employees and contractors. Because of this, a company should have a completed Form W-9 on file for each employee and contractor.
Requesting a Form W-9 from Employees
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.
Requesting a Form W-9 from Contractors
When you acquire a new contractor or vendor, enclose a Form W-9 with the initial contract. In a Form W-9 request letter, ask your vendor or contractor to complete and return the form as soon as possible. Consider implementing a policy to only pay vendors or contractors once a valid W-9 has been received, and note this policy in the letter requesting the Form W-9 from them.
Following Up on Outstanding W-9s
If you have trouble getting a completed Form W-9 from any employees or contractors, tactfully but firmly communicate that the W-9 is necessary before payment can be made to them. 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 Form W-9 within a week or two, send a second request letter to follow up.
If you have a documented policy of not paying a contractor without a Form W-9 in place, remind the vendor that you cannot pay them without the W-9 on file. The IRS requires you make a formal request for a Form W-9 to your contractors, so keep a copy of this request letter on file.
What to do if a Form W-9 is Missing
If you don't have a Form 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 24 percent – and the contractor will incur a $50 fee from the IRS.
- IRS.gov: Form W-9 Instructions
- IRS.gov: Backup Withholding for Missing and Incorrect Name/TIN
- IRS.gov: Instructions for the Requester of Form W-9
- IRS. "Instructions for the Requester of Form W-9." Page 1. Accessed June 29, 2020.
- IRS. "Reporting Payments to Independent Contractors." Accessed June 20, 2020.
- IRS. "2020 Instructions for Forms 1099-MISC and 1099-NEC." Page 6. Accessed June 29, 2020.
- IRS. "Understanding Employee vs. Contractor Designation." Accessed June 29, 2020.
- IRS. "Independent Contractor (Self-Employed) or Employee?" Accessed June 30, 2020.
- IRS. "2020 Instructions for Forms 1099-MISC and 1099-NEC." Page 2. Accessed June 29, 2020.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.