Key Takeaways

• Keep every contractor’s Form W9 on file before the first payment.
   
• If your contractor won’t give you a W9, be persistent. The IRS requires a three-step written request process.
   
• Use the IRS TIN Matching tool before filing your 1099s. It verifies name/TIN combos and supports reasonable-cause relief if the IRS flags an error later.
   
• Start backup withholding (24%) if the contractor won’t provide a Form W9. Otherwise, you owe their tax.

 

The process of collecting Form W9s is one of those “check-the-box” tasks every business has to do that usually goes: get, file, forget. 

But I want to urge you today to pay a little more attention to your W9 process.

Here’s why I say that: Your W9 process is your legal defense against thousands of dollars in IRS penalties. 

By the time a missing or incorrect Taxpayer Identification Number (TIN) shows up in February (when you’re filing), it’s too late to claim “reasonable cause.” Before year-end is when you have to build your paper trail. 

 

How do I prove “reasonable cause” to the IRS?

When the IRS issues a penalty for a missing or incorrect Taxpayer Identification Number (TIN), your only path to avoid that penalty is to prove “reasonable cause.”

What that means is your business must show that you:

1. Acted in a responsible manner, and
2. The failure was due to something beyond your control.

In other words, if you can show you followed the prescribed solicitation rules, you can make the penalty go away.

But the IRS needs to see proof: dates, copies of requests, and records showing your follow-ups. So, make sure to keep all W9-related emails, mailed requests, and signed forms for at least four years after the last 1099 for that vendor. 

 

What can I do now to prevent W9 penalties?

You can actually check if your contractor’s W9 info matches IRS records before filing any 1099s with the TIN Matching Program.

You simply upload your payee’s name and TIN through the IRS e-Services portal, and the system tells you if it’s a match. If it is, you’re protected. If not, you can correct it.

There are two ways you can use it:

• Interactive Matching: Verify up to 25 vendors at a time, instantly. Great for onboarding.
   
• Bulk Matching: Upload thousands at once (usually for year-end validation).

A successful match can give you statutory protection for your business, which also reduces your penalty exposure with the IRS. And it’s powerful evidence of due diligence, though not absolute immunity. Make sure you pair it with documented solicitations.

 

What if my contractor won’t give me a Form W9?

The IRS expects persistence. The law (and the penalty relief process) is built on the three-tiered solicitation rule:

1. Ask for the Form W9 before you pay the contractor.
    
2. If they still haven’t given you a valid TIN, send another written request by December 31 of that same year.
    
3. Still missing? One final written request by December 31 of the following year.

Immediately after the first solicitation, you have to start what’s called backup withholding: keeping 24% of their payments and sending that money to the IRS. 

If you don’t? The IRS treats that 24% as your liability, not the contractor’s. You’ll owe the unpaid tax, plus penalties and interest.

Each solicitation also must be documented, including the date, method (email, mail, system request), and content. This documentation is what the IRS looks for when you ask for penalty abatement.

Pro move: Don’t make payments to the contractor until the W9 form is received so you can avoid this headache altogether.

 

FAQs

“What happens if I pay a contractor before getting a Form W9?”

You’re immediately required to start backup withholding at 24%. If you don’t, you’re responsible for that tax.

“Do I need to send a W9 to every vendor or only contractors?”

Only vendors you pay for services (not goods) generally need a W9. Think freelancers, consultants, web designers, etc.

“What’s the penalty amount for incorrect or missing 1099s?”

As of 2025, penalties range from $60 to $310 per form, depending on how late or incorrect the filing is.

“Can I email a W9 request, or does it have to be mailed?”

Email is fine, as long as it’s secure and you can document when and how it was sent. The IRS cares more about the paper trail than the method.

“How long should I keep old W9s?”

Keep them for at least four years after the last 1099 was filed or after the business relationship ends – whichever is later.

“Do LLCs always need a 1099?”

Not always. It depends on how the LLC is taxed (single-member disregarded entity, partnership, or corporation). The W9 will tell you which applies.

 

Why You Should Act Now

Here’s why I’m putting this in front of you right now: 

• Annual solicitation letters for missing W9s are due by December 31.
• Running a bulk TIN Match in October or November gives you time to correct errors before 1099 season.
• You still have time to update your accounting software to automatically flag noncompliant vendors and apply the 24 percent withholding rule in January.

By knocking out all three before year-end, you’re essentially bulletproofing your business against one of the IRS’s most common small-business penalties. 

So, if you’re not sure whether your vendor files are airtight, now’s the time to check. My team and I can help you run a TIN Match audit, set up your documentation process, and make sure you’re ready before the IRS comes asking questions.

calendly.com/eco-tax-free-consultation/meeting