How to handle W-9 vendors correctly

If you pay independent contractors, consultants, freelancers, or small businesses, you need to collect a W-9 form before issuing payments. A W-9 vendor is any U.S.-based individual or entity that provides services to your business and requires a W-9 for IRS tax reporting purposes. Handling W-9 vendors correctly helps you protect your business from penalties and create a clean audit trail.

What is a W-9 form?

The IRS defines Form W-9 as the "Request for Taxpayer Identification Number and Certification." Its purpose is to help businesses and individuals comply with U.S. tax law by properly documenting all reportable income.

When you work with contractors, freelancers, or service providers, collecting a W-9 form before making any payments protects your business. Without a valid W-9, you cannot correctly complete a 1099-NEC form. You also risk Internal Revenue Service penalties, incorrect filings, and backup withholding obligations, where you must withhold 24% of payments.

Who qualifies as a W-9 vendor?

A W-9 vendor is any U.S.-based individual or business that provides goods or services to your company and expects payment outside of payroll. If you pay $600 or more to a vendor in a calendar year, the IRS requires you to collect a W-9 to prepare a 1099-NEC form.

You should request these vendors to complete an IRS Form W-9.

• Independent contractors and freelancers who invoice you for services.
• Consultants and advisors paid for project work or expertise.
• Single-member LLCs, partnerships, and corporations that perform services for your business.
• Sole proprietors who operate under their own name or a business name.
• Landlords if you pay rent for office spaces or equipment.

Not every vendor needs a W-9. Vendors who are taxed as C corporations or S corporations usually provide a W-9 but may not trigger a 1099 filing, depending on the services provided. Payment processors like PayPal and credit card companies also handle their own reporting, so you may not need a W-9 when paying vendors through third-party platforms.

Over 1 in 10 American workers now identify as an independent contractor. As contract work grows, collecting and managing W-9 forms has become a standard part of vendor management.

Tracking dozens of vendors manually can create errors. Ramp centralizes vendor profiles, payment records, and W-9 forms in one place, helping you stay organized as you manage multiple contractor relationships.

Independent contractors vs. vendors

An independent contractor is an individual hired to perform specific work under a contract, controlling how and when the work gets done. A vendor, on the other hand, is a broader category. Vendors can sell goods, services, or both. Both may require a W-9 form, but their roles, tax filing, and relationship with your business are not the same.

When to request a W-9 from vendors

You should request a W-9 form from a vendor before you make any payment. Collecting a W-9 at the start of the relationship gives you the taxpayer information you need to stay compliant with IRS rules and prevents costly mistakes later.

You need a W-9 form to collect the correct taxpayer identification number (TIN), legal name, and entity type from each vendor. Without this information, you cannot prepare accurate 1099 forms for the IRS. The IRS can penalize you $60 to $330 per form for incorrect information, depending on how late you fix the mistake.

Requesting a W-9 upfront also protects you from backup withholding obligations. If a vendor fails to provide a valid W-9, you must withhold 24% of their payments and send that amount to the IRS. Missing this step puts your business at risk for additional penalties.

In 2023, the IRS collected over $101.4 billion in penalties, with a significant portion tied to information return errors. Preventable mistakes like missing forms, incorrect taxpayer details, or late filings caused many of these penalties.

You should ask for a W-9 in these situations:

• Before paying any independent contractor, consultant, or freelancer for services provided to your business.
• When setting up a new vendor in your accounting or payment system, even if you are unsure if payments will exceed $600.
• Before signing a service agreement or contract with a vendor who will receive direct payments.
• When leasing property, office space, or equipment from a landlord or business owner.
• If a vendor changes their business structure, such as switching from a sole proprietor to a Limited Liability Company.
• If a vendor provides a new taxpayer identification number (TIN) due to ownership changes or IRS updates.
• If you restart work with a vendor after several years and do not have updated tax information on file.
• When paying professional service firms, such as legal, accounting, or consulting companies, that operate as partnerships or single-member LLCs.

Do not wait until the end of the year to request a W-9. Vendors may become hard to reach, change businesses, or delay responding, making it harder for you to meet 1099 filing deadlines. IRS rules require 1099-NEC forms to be sent to both the IRS and vendors by January 31 each year, giving you little time to chase missing information.

Even if you pay a vendor less than $600 in a year, collecting a W-9 upfront is smart. Vendor payments can accumulate across multiple invoices, and tracking thresholds later adds unnecessary risk. Having a W-9 on file from the beginning keeps your vendor records complete.

You are still responsible for tax compliance if a vendor refuses to provide a W-9. Start backup withholding immediately and continue to withhold 24% of all payments until you receive a proper W-9 or until the IRS instructs you otherwise.

How to collect and manage W-9 forms efficiently

Finance teams, accountants, and business owners are responsible for collecting and managing W-9 forms. If you process vendor payments, manage accounts payable, or oversee compliance, handling W-9 forms falls under your role. Collecting and organizing W-9s is not a once-a-year task. You need to establish a clear system when you onboard each new vendor and maintain it throughout the year.

• Step 1: Request a W-9 before any payment is made. Always request a W-9 form when you first engage a vendor before any work begins or payments are issued. Make W-9 collection a mandatory step in your vendor onboarding checklist. If a vendor refuses, inform them that you cannot process payments without it.
• Step 2: Use secure methods to collect W-9 forms. Never ask vendors to send W-9 forms over unsecured email or file-sharing platforms. Instead, use encrypted email, a secure online portal, or a trusted e-signature service. Ramp’s vendor management system allows you to securely collect W-9 forms and store them alongside vendor profiles. Vendors can upload documents directly through Ramp’s encrypted portal, ensuring taxpayer information stays protected and easily accessible when needed.
• Step 3: Review every W-9 form immediately upon receipt. Do not simply file the form without checking it. Confirm that the legal name matches the TIN format, such as using a Social Security Number (SSN) for individuals or an Employer Identification Number (EIN) for businesses. Verify the entity type is selected correctly. Look for missing signatures, address details, or certification errors. Early review gives you time to correct mistakes while the vendor is still engaged.
• Step 4: Validate TINs through the IRS system. Use the IRS TIN Matching system to confirm that the taxpayer identification number matches the legal name provided. Early validation reduces the risk of receiving "B-Notices" (IRS alerts about mismatched information) after filing 1099 forms.
• Step 5: Store W-9 forms securely and organize by vendor. You must store W-9 forms in a secure digital or physical location with restricted access. Assign vendor folders, tag documents clearly, and maintain organized records by vendor name or TIN. Under IRS guidelines, you should keep these records for at least four years after the tax return year to which they relate.
• Step 6: Track cumulative vendor payments during the year. Keep a running total of payments made to each vendor to know when you cross the $600 threshold that triggers 1099 reporting. Set alerts in your accounting system to flag vendors approaching the limit.
• Step 7: Review and update W-9 forms annually. Request an updated W-9 if a vendor changes their name, business structure, or taxpayer ID. Set an annual reminder each December to review existing W-9s and confirm they are still accurate.
• Step 8: Prepare for backup withholding if needed. If a vendor refuses to provide a W-9 or submits incomplete information, you are legally required to begin backup withholding. Withhold 24% of each payment and remit the withheld amount to the IRS using Form 945. Document your withholding actions carefully to protect your business from penalties during audits.

Protect your business with smarter W-9 and vendor management

Handling W-9 vendors the right way protects your tax records and strengthens your entire business. Missing a form, reporting an incorrect taxpayer ID, or delaying a 1099 exposes your company to penalties, audit risks, and payment disruptions.

Building a smarter W-9 process starts with strong habits. Collect forms early, verify vendor information carefully, and track cumulative payments year-round. Keeping your vendor records accurate and complete protects your compliance and keeps your financial operations running smoothly.

Using a platform like Ramp strengthens this process even further. Ramp helps you securely collect W-9 forms during onboarding, centralize vendor records, automate payment tracking, and stay ahead of 1099 deadlines. By embedding W-9 collection into your vendor management system, Ramp reduces manual errors, improves audit readiness, and saves your team time.