The best time to collect a W-9 is before you make the first payment. Not after. Not at year end. Before you pay them anything. Make it part of your onboarding process for any new vendor or contractor. If someone is going to do work for your business, they fill out a W-9 before the first check or transfer goes out.

The reason is straightforward. If you pay any individual, partnership, or LLC $600 or more during the calendar year for services, rent, or certain other payments, you’re required to file a 1099-NEC or 1099-MISC with the IRS. The W-9 gives you the information you need to complete that form: their legal name, address, taxpayer identification number, and business entity type. Without it, you can’t file a 1099 correctly.

You generally do not need a W-9 from C corporations or S corporations for most service payments. You also don’t need one for payments made for merchandise or physical goods. But the catch is that you won’t know whether a vendor is a corporation unless they tell you on a W-9. So many business owners just collect one from everyone and sort it out later. That’s a reasonable approach and saves you from guessing.

The biggest mistake is waiting until January to start chasing W-9s. By then, the contractor you hired in March may have changed their phone number, closed their business, or just doesn’t feel like responding to your emails. You’re stuck trying to file 1099s by the January 31 deadline without the information you need. That leads to late filings, potential IRS penalties, and unnecessary stress during an already busy time of year.

If a vendor or contractor refuses to provide a W-9, the IRS requires you to begin backup withholding at 24% from their payments. Most people hand over the W-9 quickly once they hear that. But the point is that the IRS takes this seriously, and you have an obligation to request it.

Keep your W-9s organized and updated. Store them digitally so you can find them when you need them. If a contractor’s information changes, such as a new business name or TIN, request an updated form. Stale W-9s lead to mismatched information on 1099s, which can trigger IRS notices for both you and the contractor.

A simple system works well here. Before any new vendor gets paid, they provide a W-9. You save it in a folder. At year end, you already have everything you need for 1099 preparation and filing. No scrambling, no chasing people down, no penalties.

If you’re behind on collecting W-9s or unsure which vendors need them, that’s something to clean up sooner rather than later. Small business tax and bookkeeping services can help you build a process that keeps you compliant year after year so January isn’t a headache.