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When is a W9 form required from vendors? The short answer is: always. We’ll review the exceptions to this rule, but overall, businesses should always request their vendors to fill out a W9 form.
If businesses request new vendors to fill out W-9 forms at the beginning during the supplier onboarding process, they’ll save a lot of time and effort come tax season. Ideally, a business will have a vendor’s W-9 information when the first order occurs, before they remit the first payment. Vendors (payees) should submit updates to the payer when Form W-9 information changes.
This article isn’t intended to give you tax or legal advice. Consult your CPA or attorney and read Form W-9, Form 1099-MISC, and Form 1099-NEC instructions on the IRS website.
What is Form W9?
Form W9 is an IRS form a vendor submits with a taxpayer identification number (TIN) and contact information to businesses that pay them. Payers use signed W9 forms to file information returns, including Form 1099-MISC and 1099-NEC by vendor name, reporting amounts of at least $600 paid to specific types of vendors during the calendar year, backup withholding, and FATCA status.
Vendors or suppliers and independent contractors use Forms 1099-MISC and 1099-NEC received from the payer to file their federal and any required state income tax returns for the applicable tax year.
Do Businesses Need a W9 From All Vendors?
Businesses should request a W9 from all vendors. Certain vendors will be exempt from backup withholding and still need to fill out Form W-9 to enter an exempt payee code and make certain certifications. Some vendors will fill out a form like one of the Form W-8 or similar forms for foreign persons.
U.S. Persons vs Foreign Persons and Use of Form W9
Businesses need to get a W-9 form from U.S. persons. The IRS definition of U.S. persons who are individuals includes each U.S. citizen or U.S. resident alien. According to the IRS in Instructions for the Requester of Form W-9, besides these individuals, U.S. persons also includes:
- “A partnership, corporation, company, or association created or organized in the United States or under the laws of the United States;
- Any estate (other than a foreign estate); or
- A domestic trust (as defined in Regulations section 301.7701-7)”.
Businesses also use IRS Form W-9 to request “certain certifications and claims for exemption” from their vendors. Certain payees are exempt from backup withholding and should enter the exempt payee code on Form W9.
According to the IRS W-9 instructions, regarding foreign persons with amounts paid not reportable to the IRS from a W-9 form:
Advise foreign persons to use the appropriate Form W-8 or Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for more information and a list of the W-8 forms.
When is a W9 Not Required?
A W9 from vendors is not required when payments will be less than $600 in a calendar year, but it is a good idea to request a W9 from all vendors. Also a W9 is not required when payments are not associated with conducting a trade or business.
When Should Your Business Receive a W9 Form from Vendors?
Businesses should receive a W9 from vendors when the vendor is new and again whenever the supplier’s Form W-9 information changes. Examples of changing information include changes in vendor name (business name or individual legal name, if applicable), address, and taxpayer identification number (TIN). A vendor should submit a new W9 to the payer when their legal business form changes.
Note that the vendor files a W9 form with the payer before the total amount paid in a calendar year is known. The supplier may submit Form W9 to the payer and not receive a Form 1099-MISC or 1099-NEC later because the total amount paid by the customer or client in the calendar year is less than $600.
Get the W9 forms as early as possible. It may be more challenging to get an initial Form W9 from vendors later, particularly if the supplier no longer does business with the payer.
Collect W9 forms before making the first supplier payment
Automate payables and make reporting of global supplier payments using W9s easier.
The Importance of W9 Vendor Forms
Trades or businesses need to get W9 Forms from U.S. vendors to prepare information returns like Form 1099-NEC and 1099-MISC required by the IRS to report calendar year amounts paid to these suppliers or independent contractors of $600 or more or amounts of backup withholding of federal income taxes.
If payers don’t collect backup withholding from applicable payees, they may be liable for uncollected balances, according to IRS Instructions for the Requester of Form W-9.
Note that foreign vendors file a different form, like Internal Revenue Service Form W-8-BEN, “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)” or “W-8-BEN-E (Entities)” other required IRS form instead of Form W-9.
What Type of Taxpayer Identification Number is Needed for Form W9?
The payee’s taxpayer identification number (TIN) may be:
- A social security number (SSN)
- For an individual sole proprietor business owner, like a freelancer or other independent contractor
- An individual taxpayer identification number (ITIN)
- For individuals who can’t get a social security number
- For an individual sole proprietor business owner, like an independent contractor
- Used by a resident alien in filling out Form W-9
- An employer identification number (EIN) issued by the Internal Revenue Service
- Also known as a federal tax information number
- Used to identify a business entity.
Backup Withholding Related to Form W9 and IRS Information Return Form 1099-MISC or 1099-NEC
The amount of backup withholding of federal income taxes from vendors is another item the payer reports to the Internal Revenue Service (IRS) on Form 1099-MISC or 1099-NEC. Form 1099-MISC and Form 1099-NEC are generated based on W9 information. Certain payees are exempt from backup withholding and should “enter an exempt payee code on Form W-9”.
Payee vendors are subject to backup withholding at a 24% (or current) rate if they don’t provide their taxpayer identification number on a Form W-9 or the TIN provided is incorrect.
FATCA Checkbox related to Form W9 on the Payer’s Information Returns
FATCA (Foreign Account Tax Compliance Act) uses reporting of U.S. taxpayer foreign accounts by foreign financial institutions. Using any information from the payee on Form W-9 sent to the business payer isn’t sufficient for FATCA compliance.
According to the IRS, in its Form W-9 Instructions for Requesters of Form W-9: “A participating foreign financial institution (PFFI) should request Form W-9 from an account holder that is a U.S. person. If an account is jointly held, the PFFI should request a Form W-9 from each holder that is a U.S. person.”
Efficient and Accurate Ways for Businesses to Receive Vendor W9 Forms for Later IRS, State, and Recipient Reporting
An efficient way to receive vendor W9 forms is to have these suppliers use the self-service supplier onboarding portal that’s part of the payer’s SaaS add-on AP automation software. Payables automation software seamlessly integrates with the payer’s ERP system or accounting software.
The supplier portal is also a two-way communication platform with documents and status available to both vendor and the business paying them (that uses the AP automation software).
Vendors accurately enter their W9 information online through the supplier portal, reducing the accounts payable team’s workload. Members of the accounts payable team don’t need to manually enter paper W9 forms from vendors or constantly follow up to get completed forms.
AP automation software automatically matches each tax ID number (TIN) to validate taxpayer name and TIN combinations. AP automation also includes FATCA compliance software.
On information returns like Form 1099-MISC and 1099-NEC, the IRS charges filers (the payer) penalties as a dollar amount per form for inaccurate or missing vendor taxpayer identification numbers and missing vendor names. Therefore, the accuracy of W9 information is essential for businesses in their IRS compliance.
The AP automation system creates an electronic Form W-9. Automation software that lets a business automatically prepare required Form 1099-MISC and Form 1099-NEC information returns by the applicable electronic filer due date after year-end to achieve IRS compliance with more accuracy and efficiency.
Summary – Form W9 for Vendors
Vendors submit W9 information or Form W9 to the trades or businesses that pay them any amount. If amounts paid to certain types of vendors total at least $600 during a calendar year in the course of a trade or business, then the payer’s business files information returns like Form 1099-MISC or 1099-NEC (or 1099-K for a Third Party Network) with the IRS, applicable states with income taxes, and gives a copy to the recipient after year-end by the due date.
If backup withholding is required and occurs, then the payer business filing Form 1099-MISC or 1099-NEC reports any amount of U.S. federal income taxes withheld. The backup withholding rate is 24% (when writing this article). Consult the latest IRS Instructions for the Requester of Form W-9 for the current backup withholding rate for reportable payments. Learn more about global supplier tax compliance forms rules.
