Why is a W9 so important? (2024)

W9s act as “proof” that the vendor provided information about their tax status and info. In case the vendor didn’t provide the right information or misunderstood how to report it, then a completed (signed/dated) W9 is your way out of any penalties that might incur for improper filing.

We mentioned that there are a couple of cases when a 1099 won’t be filed and that’s why we need the W9 from each vendor. 1099s don’t need to be issued to vendors that are C or S corporations. LLCs that marked the corporation boxes would also not need a 1099 completed. In those rare occasions when the vendor marks the Exempt or Trust/Estate box, those would more than likely not need a 1099 issued either.

Sole proprietors, LLC (not corporation), partnerships = Qualify for possible 1099

Next we look at HOW you pay your vendors. If you pay your vendors with a debit or credit card, those payments are NOT included on a 1099. The vendor will receive a Form 1099-K from their merchant provider who processed your payment. So if you were to issue a 1099 for the same amount, then the vendor could possibly have their income reported to the IRS twice. If you use an electronic accounting tool you can easily track how the vendors were paid and pull the data needed to file 1099s.

Payments by cash, check or online bill pay ONLY = Qualify for 1099 reporting

If they are informational returns, why as a business owner do you need to dedicate so much energy to completing 1099s?

• In 2013 IRS added a question to all business tax returns that asks if you had vendor payments that would qualify for 1099 reporting AND did you complete them. Your tax professional must ask that question and mark the appropriate box on your returns. Skipping it may trigger a red flag for possible audit for YOU.
• While the vendor may be triggered for audit, you the business owner that paid the vendor will be the one penalized for not filing. Current penalty is $50 for inadvertently filing and $100 for intentional not filing per form.

What if you don’t get a W9, how else can you pull the info?

• You can look at the vendor invoices for an EIN listed.
• Look at the vendor name listed. Normally if they use the words Inc or Corporation in their name there is a strong possibility that they would not require a form.
• However, this requires YOU the business owner to guess. The only way to avoid penalties is to require a W9 from your vendors. If vendors refuse, our suggestion is to find a different vendor.

What if you send a 1099 to a corporation or under the $600 amount?

• No big deal! These are informational return and are NOT required for the business to file their tax return. When in doubt, send a 1099.
• Be aware some vendors get bent out of shape around getting a 1099. This revolves around the vendor not having controls around their accounting. Our suggestion is to thank them and make the adjustment as needed or record the info for the next year. Keep the communication from the vendor as “proof” and if the W9 you have on file doesn’t reflect this new info, require a new one.

The financial penalty for ignoring or improper filing can bankrupt a business. With a few internal processes, this informational return process can be easy.

Need help pulling it all together?

Contact us at team@accountingdepartmentinc.com or 503 987 1307 for a complimentary 30 session to discuss all things accounting and solutions to your particular needs.