Collecting W-9s from subcontractors before the first payment

Why before the first payment

If a payee doesn’t give you a TIN, the IRS requires backup withholding of 24% from reportable payments such as nonemployee compensation. For nonemployee compensation this applies right away, even if the sub says they have applied for a TIN. If you don’t withhold when you are required to, you can be liable for the amount. Collecting the W-9 during onboarding avoids that situation entirely.

What to check on a W-9

1. Line 1 is the name that matches the TIN. For a single-member LLC that is a disregarded entity, the IRS instructions say the owner’s name goes on line 1 and the LLC’s name on line 2.
2. The federal tax classification box is checked, and for an LLC that isn’t disregarded, the C, S or P classification is filled in.
3. The TIN is complete: an SSN or EIN (or ITIN).
4. It is signed and dated. A valid W-9 must be signed under penalties of perjury by the payee or someone authorized to sign for them.
5. You are using the current revision of the form from IRS.gov.

Keep W-9s safe and current

• A W-9 contains a TIN, which may be an SSN. Limit who can open it, and don’t email it around in plain attachments.
• Ask for a new W-9 when the sub changes its name, entity type or TIN. The IRS says documentation becomes invalid when you know circumstances affecting it have changed.
• If you file information returns, the IRS TIN Matching e-service lets eligible payers check name and TIN combinations before filing.
• You can collect W-9s electronically if the system meets the IRS requirements for electronic submission, including an electronic signature under penalties of perjury.