Burkland Brief:
- Collect W-9s before you pay a vendor. This is the data your 1099s depend on.
- Accurate W-9s lead to accurate 1099s. Avoid penalties and rework.
- No W-9 can trigger 24% backup withholding and vendor friction.
- Make W-9 collection part of onboarding, not a January scramble.
When cash flow is tight and vendors are waiting, it can be tempting to skip a few steps and just get payments out the door. But when it comes to vendor compliance, skipping Form W-9 is one shortcut that will cost you later.
What’s the Difference Between a W-9 and 1099?
A W-9 and a 1099 are two halves of the same process. The W-9 collects a vendor’s legal name, entity type, and tax ID number. At year-end, you use that data to issue a 1099-NEC to any vendor you paid $600 or more. Without the W-9, you can’t issue an accurate 1099, and that’s when the IRS starts paying attention.
Every year, the IRS penalizes small and midsize businesses for failing to issue 1099s correctly or on time, often because they never collected W-9s in the first place. Those missing forms can trigger penalties, IRS backup withholding, messy reconciliations, and painful audit exposure.
Think of the W-9 as a low-cost insurance policy. It keeps your vendor records clean, protects you in an audit, and helps your accountant file your 1099s quickly and accurately.
What’s at Stake When You Don’t Collect W-9s?
1. IRS Penalties Add Up Fast
If you fail to issue a required 1099-NEC because you don’t have the vendor’s tax information, the IRS can assess hundreds of dollars per form in penalties, with higher amounts for late or non-filing. Multiply that by a dozen contractors, and you could be looking at thousands of dollars in fines for paperwork that could have been handled with one form.
2. Backup Withholding Strains Vendor Relationships
Without a valid W-9, you’re required to withhold 24% of each payment and remit it to the IRS instead of your vendor. Most small businesses don’t realize this until it’s too late, resulting in either non-compliance or a strained vendor relationship when you suddenly have to withhold thousands of dollars.
3. Audit Risk and Reputational Damage
If the IRS audits your business and discovers payments made without W-9s or 1099s, you can be held responsible for unpaid withholding, penalties, and interest. Plus, poor documentation creates a perception of weak internal controls which is a red flag for investors, lenders, and potential buyers.
4. Year-End Chaos and Accounting Delays
Chasing down W-9s in January stalls 1099 filings, delays tax preparation, and forces your CPA to guess or file extensions. A strong vendor-onboarding policy prevents all that stress.
Use this quick checklist to make W-9s and 1099s part of your standard operations:
- Create a vendor onboarding form that requires a W-9 upload before payment setup.
- Train your bookkeeper or AP staff to verify every new vendor has a valid W-9 on file.
- Store forms securely in your accounting software or an encrypted cloud folder.
- Track cumulative payments throughout the year so you know who will cross the $600 1099 threshold.
- Run a vendor report each December to confirm which 1099s need to be issued.
- Use e-filing tools or a CPA service to send 1099s to both the IRS and your vendors by January 31.
- Review annually, refresh expired W-9s and confirm business names or entity changes.
The Smart Policy: W-9 First, Payment Second
The simplest way to stay compliant is to make W-9 collection a non-negotiable part of your vendor setup process. No W-9, no payment. Your bookkeeper or accountant should verify that each vendor record includes a valid taxpayer identification number before any money leaves your account.
This one small habit can save your business hours of cleanup, avoid IRS scrutiny, and protect valuable vendor relationships.
Burkland can streamline your 1099 process, ensuring every filing is accurate, timely, and compliant. Connect with us to set up a smooth, stress-free 1099 filing process before deadlines hit.