You’ve heard of W-9s in your business, but you might not be confident in how it applies to you in your construction business and what makes it an important piece in good vendor management. A W-9 form is an IRS form that gathers information about subcontractors and vendors and includes all of their company information. Examples of fields they complete are legal company name, entity type, address, and tax ID number. These forms are not mandatory to be completed because you don’t actually send them to the IRS, but are important when it comes time to fill out a 1099. Keeping these forms on file is a part of good vendor management.
Not all of your vendors and subcontractors will require a 1099 form. Why is that? Subcontractors and vendors whose entity type is listed as a corporation don’t require a 1099 be filed and reported to the IRS. With good management of W-9 forms, completing 1099s will be less taxing with reduced filing fees and only sending to those which are mandatory.
Here is a reminder that unlike W-9s, 1099s do in fact need to be filled out and sent to the IRS. Completing a 1099 form is required when a subcontractor or vendor is paid $600 or more in one calendar year. 1099 forms are due at the end of January therefore having them completed every time you have a new vendor allows you to be more proactive.
How do you know which vendor and/or subcontractor should be completing a W-9 form? Everyone! No matter the circumstances, a form of good practice would be to request this form from ALL subcontractors and vendors. Good practice is to request them once a year. Typically they are requested at the beginning of the year, but if you’re working with a subcontractor or vendor for the first time you should request it then.
Once you have a completed W-9 form, you will need to store it. The most common ways to store W-9s is through Construction Management Software, QuickBooks, or stored online in your document management software. You could create a job folder instead of a vendor folder, however, this could get confusing because you might use the same subcontractor or vendor from more than one job. The best practice would be to create a vendor folder.
Even though W-9s are not mandatory to have completed, good business practice says you should complete them. They are important in keeping you organized and compliant. There’s a lot to know when it comes to good vendor management and this is a small piece, but nevertheless an important one!
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