What to do if a contractor will not provide you a Form W-9
Working with independent contractors is a common and often smart move for small businesses. But what happens when one of your contractors refuses to provide a Form W-9?
The IRS requires you to collect this form because it gives you the contractor’s legal name and taxpayer identification number (TIN). Without it, you can’t properly file Form 1099-NEC at year-end. Thankfully, there are clear steps you can take to protect your business.
Step 1: Request the W-9 in Writing
The first step is simple—ask for it. Send a polite written request to the contractor explaining that the form is required for tax reporting. Keep a record of your request. Documentation shows you made a good-faith effort in case the IRS ever asks.
Step 2: Apply Backup Withholding
If the contractor doesn’t provide their W-9, the IRS requires you to withhold 24% of their payment. This is called backup withholding.
Example:
Contractor invoice: $1,000
Backup withholding (24%): $240
Amount you pay contractor: $760
The withheld amount doesn’t stay with you—it must be sent to the IRS.
Step 3: Deposit Withheld Funds Using EFTPS
The IRS requires you to remit withheld funds electronically through the Electronic Federal Tax Payment System (EFTPS).
Most small businesses are on a monthly deposit schedule, which means deposits are due by the 15th of the following month.
Larger businesses may need to deposit semiweekly, but that’s uncommon for backup withholding.
If you haven’t used EFTPS before, you’ll need to enroll, which can take a little time (the IRS mails you a PIN).
Step 4: Report on Form 945
Backup withholding is reported annually on Form 945, Annual Return of Withheld Federal Income Tax.
Due date: January 31 of the following year
Form 945 is different from payroll tax filings (like Form 941). It is specifically for non-payroll withholding, including contractor backup withholding.
Step 6: Record the Expense Properly in Your Books (don’t worry - we’ll handle this part)
For bookkeeping, always record the full invoice amount as an expense, even if you withheld part of it. The withheld portion should be recorded as a liability until you remit it to the IRS. Later, when you send the $240 to the IRS, we will debit the liability and credit your cash account.
A Practical Tip: “No W-9, No Payment”
To avoid this hassle altogether, many businesses adopt a “No W-9, No Payment” policy. That way, contractors know upfront they must return a completed W-9 before receiving any funds.
Frequently Asked Questions
Q: Can I still deduct payments to a contractor if I don’t have their W-9?
Yes. The expense is still deductible as long as it’s a legitimate business expense. The W-9 affects your reporting obligations, not the deductibility of the payment.
Q: What if I already paid the contractor without a W-9 or withholding?
You should still request the W-9 and, if they don’t provide it, start backup withholding on future payments. For amounts already paid, you won’t be able to withhold retroactively, but you must still file a 1099-NEC with the information you have.
Q: What happens if I don’t withhold the 24%?
If you don’t withhold when required, the IRS may hold you responsible for the backup withholding amount. This is why compliance is so important.
Q: Do I need to tell my CPA?
Yes. Your CPA will need to know so they can:
Track backup withholding deposits,
File Form 945 at year-end, and
Advise you on compliant business practices.
Q: How can I avoid this problem in the future?
Require a completed W-9 before issuing any payments. Many businesses collect the form as part of the onboarding process, so they never end up in a noncompliant situation.
Final Thoughts
Not getting a W-9 from a contractor can feel frustrating, but it doesn’t mean you’re stuck. The IRS provides a clear path forward: withhold 24%, deposit it through EFTPS, report it on Form 945, and issue the 1099-NEC.
👉 Have contractors who haven’t sent back their W-9? Contact us today, and we’ll help you set up your books correctly, stay on top of deposits, and avoid IRS penalties.
