Year-end is just around the corner. One of the early steps you can take to ease preparation for your year-end taxes is to ensure that your Vendor W9 information is in order. This article will give you good guidelines for a proper W9 information review.
Many business owners ask the question “Do I really need a W9 form from these guys?”, and the answer is usually “Yes!”
If you pay for any kind of services to your business, you need to ask yourself this simple series of questions to ensure you have the proper forms from them:
- “Is this person my employee, or a vendor?” Both the IRS and L&I websites have a very helpful page for classification of vendors vs. employees. Visit independentcontractor.lni.wa.gov/ or https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
- If they are an employee, you need to have their W4 form (plus other employee paperwork, of course).
- If they are a vendor, you need to have a W9 form.
- “What am I paying them for?” You need to have W9 information for anyone that provides services to your business. This would exclude folks where you are paying them for products-only, without any service. For instance, if you are reimbursing someone for supplies purchased for your business, or if you are purchasing office supplies. For some reason, many people feel like legal services may be exempt. This is not true, and in fact, this is one area that the IRS has special extra rules in relation to Vendors and 1099s.
- “What method of payment am I using to pay them?” If you are paying someone via Credit Card or Debit Card, you do not need to worry about collecting a W9 from them. However, if you pay using any form of a check (ACH, EFT, cash, Direct Deposit, Online Bank Check, personal transfer, etc.) you will need to have a W9 form. It is a good to collect a W9 from all vendors so that if your payment method changes you aren’t missing this critical information.
The main reason that businesses fail to collect the proper W9 forms for their vendors, is because they are pretty sure that the vendor will be exempt from 1099-filing requirements:
“I don’t need their W9 because the company is a non-profit organization, and that is exempt from the 1099 requirement.”
This is incorrect.
You need to have their signed W9 form on record, because you:
- Need information from them to determine if they are in-fact exempt from receiving a 1099 or backup withholding
- Their signed statement that gives you protection as “See? This is what they legally stated to me.”
The W9 proves that you had a reason to classify them as exempt, based on information they provided to you instead of your own assumption.
Failure to collect a W9 form from someone who turns out not to be exempt is tantamount to helping this vendor/service-provider commit tax evasion. Such an act exposes you to penalties, fines and even imprisonment.
Here is a link to the current W9 form, available in form-fillable pdf format on the IRS website: https://www.irs.gov/pub/irs-pdf/fw9.pdf
Often the thought of performing an over-all review of all paid workers seems overwhelming. We can help! We excel at quickly and efficiently reviewing your records, and aiding in the process of updating your records so that you are all ready to go for year-end tax filing.