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 (email or letter) 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: $2,500
Backup withholding (24%): $600
Amount you pay contractor: $1,900

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: February 1, 2027 for the 2026 tax year, or February 10, 2027 if every required deposit was made on time and in full.
Form 945 is different from payroll tax filings (like Form 941). It is specifically for non-payroll withholding, including contractor backup withholding.

Step 5: Issue Form 1099-NEC

Even if you didn’t receive a W-9, you still need to issue a Form 1099-NEC for any contractor you paid $2,000 or more.

Report the gross amount paid (before withholding).
The IRS will already have a record of your withheld funds from EFTPS and Form 945.
If you applied backup withholding to a vendor, you must file a Form 1099-NEC for that vendor even if total payments came in under $2,000. The higher threshold does not apply once withholding is involved.

This creates a paper trail that matches your filings with the IRS’s records.

Step 6: Record the Expense Properly in Your Books

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.

Example journal entry for a $2,500 invoice with $600 withheld:

Debit: Contractor Expense $2,500
Credit: Cash/Bank $1,900
Credit: Backup Withholding Payable $600

Later, when you send the $600 to the IRS, 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
Ensure your 1099-NEC filings are correct.

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.

Most importantly, keep your CPA informed. They’ll help you file everything correctly at year-end and make sure your deductions aren’t jeopardized.

👉 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.

What to Do if a Contractor Won’t Provide a Form W-9