For growing tech startups, hiring independent contractors is common. Developers, designers, marketers, and customer support teams often work as freelancers. When this happens, the IRS expects one key step before any payment goes out:
Collect Form W-9 from the contractor.
This form helps you avoid withholding issues and provides the correct Taxpayer Identification Number (TIN) so you can report payments properly using Form 1099.
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Why Startups Need a W-9 Before Payment
A valid W-9 from each contractor protects your startup from tax problems later. The form provides the contractor’s legal name, confirms their TIN (SSN, EIN, or ITIN), shows their tax classification, and indicates whether backup withholding applies.
If you skip this step or collect it too late, you risk backup withholding, where the IRS requires you to withhold 24 percent of the contractor’s payment and send that amount to the IRS. This can create cash flow issues for the contractor and extra work for your team.
The rule is simple: No W-9, no payment.
What Happens If There Is No Valid W-9
If a contractor does not provide a correct TIN or refuses to sign a W-9:
- You must withhold 24 percent federal tax from reportable payments
- You must report and deposit the withheld money to the IRS
- You may face IRS notices later if the TIN was wrong or missing
Skipping W-9 collection can turn a straightforward payment into a compliance challenge.
Make W-9 Collection Digital From Day One
Startups work fast and paperwork can slow down processes. Using digital tools helps collect, verify, and store W-9s efficiently. Popular tools include:
| Tool | How it Helps |
|---|---|
| DocuSign | Secure e-signatures and easy document return |
| PandaDoc | Automated W-9 requests inside contract workflows |
| HR / Contractor Onboarding Portals | Collect forms with personal details in one place |
| Form1099Online.com W-9 Manager | Track W-9 status and ensure every contractor is ready for 1099 filing |
Automating the request during onboarding saves time and ensures compliance.
Best Practices for W-9 Compliance
Startups should follow these steps:
- Request W-9 before work begins
- Confirm the TIN format is correct
- Store all W-9 forms in a secure, digital system
- Update W-9 if a contractor changes business type or name
- Keep records ready for 1099 filing at year-end
These steps reduce errors and prevent unnecessary withholding or penalties.
W-9s and 1099 Filing Work Together
At the end of the year, any contractor paid $600 or more for services usually requires a Form 1099-NEC. The information on the W-9 ensures the 1099 form is accurate, reducing the risk of IRS mistakes and ensuring contractors receive proper tax reporting on time.
With proper W-9s on file, filing 1099s becomes straightforward and error-free.
File 1099s Smoothly with Form1099Online.com
Once your W-9 collection system is in place, filing is easier. Form1099Online.com is an IRS-authorized e-file provider that helps startups:
- File 1099-NEC and other 1099 forms online
- Send contractor copies digitally or by mail
- Reduce errors with built-in checks
- Meet IRS deadlines without stress
Conclusion
Collecting W-9 forms from contractors before making payments is essential for startups. It prevents backup withholding, ensures accurate reporting, and keeps your business compliant with IRS rules. Implementing a digital W-9 workflow and using Form1099Online.com for e-filing makes the process simple, efficient, and reliable, allowing startups to focus on growth without tax compliance concerns.