W-9 Collection Best Practices: A Proactive Approach to Vendor Management

Collecting W-9 forms is the foundation of successful 1099 compliance. Missing or incorrect W-9s can lead to penalties and delays. Here’s how to make W-9 collection seamless and secure.

What is a W-9 Form?

• Purpose: A W-9 form collects a vendor’s Taxpayer Identification Number (TIN) and legal name.

• Who Needs to Provide One?

  • Freelancers, contractors, and vendors who are paid $600 or more annually for services.
    

Best Practices for W-9 Collection

1. Onboard Vendors Properly:

   • Require W-9s at the start of every vendor relationship.

2. Validate Information:

   • Use TIN matching to ensure accuracy and avoid future IRS rejections.

3. Secure Storage:

   • Store forms securely to protect sensitive information, such as Social Security numbers. Avoid using unsecured devices or cloud storage.

4. Keep Forms Updated:

   • Verify W-9s annually or when vendors report changes (e.g., address, legal name).
     

Common Mistakes to Avoid

• Failing to collect W-9s before payments are made.

• Storing W-9s in insecure locations, risking data breaches.

• Ignoring backup withholding requirements (24%) for vendors who fail to provide a valid TIN.
  

A construction firm working with 20 subcontractors implemented a streamlined W-9 collection process, ensuring all forms were securely stored and validated. This saved them from a potential $2,000 in penalties for missing or inaccurate information.

How Arc&Ledger Can Help From onboarding to secure storage, we help businesses implement effective W-9 collection practices. Contact us today for a customized solution.