Over the course of doing business, you will hire certain vendors to provide a good or service to your business. Other times you will hire a contractor to perform a specific task or project for your business. Either way, issuing payment is necessary. While payments to vendors generally are a repetitive and routine task, payments to contractors are generally paid per job. In either instance, your business should request a W-9 at the onset of doing business. Why? Well, the answer is simple – TAX COMPLIANCE for your business. However, if your vendor or contractor is unable to provide one, then that is a red flag and you should potentially consider another provider.
As business owner, it is important to understand the importance of the W-9. The form provides the necessary data to prepare information returns like Form 1099-NEC (Non-Employee Compensation) and 1099-Misc (Miscellaneous). These forms are required by the IRS to report calendar year amounts paid in of $600 or more and are issued by January 31st of each calendar year.
Lastly, a payee’s taxpayer identification number (TIN) will be required and is classified as one of the following:
- A social security number (SSN) – used for individual sole proprietor business owner, like a freelancer or independent contractor;
- An individual taxpayer identification number (ITIN) – for individuals who cannot get a social security number, or an individual sole proprietor business owner, like an independent contractor, or a number used by a resident alien in filling out Form W-9;
- An employer identification number (EIN) issued by the IRS known as a federal tax identification number and is used to identify a business entity.
We recommend obtaining a W-9 from any new vendor or contractor you use at the onset of doing business with them.