Is a W-9 Required for All Vendors? Exemptions, LLCs, and Foreign Payees

A W-9 is not required for every vendor. Your business needs one only when you expect to make payments to a non-employee that the IRS treats as reportable on a 1099 — usually $600 or more in a year for services, rent, or similar categories — and the vendor isn’t in an exempt category like most corporations, government agencies, or foreign payees. Get this wrong in either direction and you can face penalties: for missing W-9s you should have collected, or for withholding on payments that never called for it.

When You Do Need a W-9

Collect a W-9 when you’re paying a U.S. non-employee for something the IRS wants reported at year-end. The most common trigger is $600 or more paid to a single vendor during the calendar year for services, which lands on Form 1099-NEC. The threshold is cumulative per vendor: $400 in March plus $300 in September crosses the line.¹

The same $600 threshold applies to several 1099-MISC categories: rent, prizes and awards, medical and health care payments, crop insurance proceeds, and gross proceeds paid to an attorney. Royalties are reportable at just $10.²

One boundary that trips up new businesses: this reporting obligation only applies to payments made in the course of a trade or business. Hire a plumber for your home kitchen and no 1099 is required, whatever the amount. Hire the same plumber to fix a pipe at your office and pay $600 or more, and you need the W-9.³

Practical tip: collect the W-9 before you make the first payment. You rarely know in January which vendor relationships will cross $600 by December, and chasing down tax information months later is unpleasant work.

Payments That Don’t Require a W-9

The largest category people miss is goods. If you buy $10,000 of inventory or merchandise from a supplier, no 1099 is due and no W-9 is needed.⁴ The same goes for payments for telephone service, freight, and storage. The reporting system is aimed at services, rent, and similar categories, not routine purchases of goods.

Employees are outside the W-9 system entirely. They complete a W-4, and their pay is reported on a W-2. The W-9 is strictly for independent contractors and other non-employee payees. If you’re unsure whether someone is an employee or a contractor, resolve that classification question first.

Payments under the applicable threshold ($600 for most categories, $10 for royalties) don’t technically require a W-9. In practice, many businesses ask every service vendor for one at onboarding, because predicting the annual total is harder than collecting the form.

The Corporate Exemption and Its Exceptions

Even above $600, certain entities are exempt from 1099 reporting, and you don’t need a W-9 from them either. The largest exemption covers corporations. Payments to C-corporations and S-corporations, including LLCs that have elected corporate tax treatment, are generally not reportable.⁴

Two exceptions punch through the corporate exemption, and you do need a W-9 in both cases:

Legal services. Payments of $600 or more to any attorney or law firm are reportable, whether the firm is a sole practitioner or a large incorporated partnership. Attorney fees go on the 1099-NEC; gross proceeds from settlements go on the 1099-MISC.⁴
Medical and health care services. Payments to health care providers are reportable even when the provider is a professional corporation.⁴

Several other entity types are exempt. Federal, state, and local government agencies don’t receive 1099s. Tax-exempt organizations recognized under Section 501(a) are exempt from backup withholding. The W-9 itself lists 13 exemption codes covering entities like banks, securities dealers, real estate investment trusts, and registered investment companies.⁵

Payments processed through third-party settlement organizations — payment apps, online marketplaces, credit card processors — are also outside your 1099-MISC and 1099-NEC reporting. Those platforms handle their own reporting on Form 1099-K when a payee crosses $20,000 in gross payments across more than 200 transactions during the year.⁶ If you pay a contractor through a payment app, don’t also issue a 1099-NEC for the same payment.

LLCs: Check the Tax Classification

LLCs cause more W-9 confusion than any other entity type, because an LLC’s legal structure and its tax classification are two different things. The IRS doesn’t recognize “LLC” as a tax category. Each LLC is taxed as a sole proprietorship (single-member), a partnership, a C-corporation, or an S-corporation, depending on its election.

A single-member LLC that hasn’t elected corporate treatment is a disregarded entity for tax purposes. On the W-9, the owner’s individual name goes on Line 1, not the LLC’s business name. The LLC name goes on Line 2. The owner provides their own Social Security number or individual TIN, not an EIN obtained for the LLC.⁵

A multi-member LLC taxed as a partnership, or any LLC that has elected C or S-corporation status, checks the “LLC” box on Line 3a and enters the appropriate code: C, S, or P.⁵ That code decides whether the corporate exemption applies. An LLC taxed as a C-corporation is treated like any other corporation and is generally exempt. An LLC taxed as a partnership or disregarded entity is not exempt, and you’ll need to issue a 1099.

When a W-9 arrives from an LLC vendor, check the tax classification box before assuming you can skip the 1099. A blank classification, or the wrong one, is worth catching now rather than at filing time.

Foreign Vendors Use a Different Form

Foreign vendors don’t use the W-9 at all. If your vendor is not a U.S. person — not a U.S. citizen, resident alien, domestic corporation, or domestic partnership — they provide a form from the W-8 series. Foreign individuals use Form W-8BEN to certify foreign status and claim any tax treaty benefits. Foreign entities use W-8BEN-E, which also captures their classification under the Foreign Account Tax Compliance Act.⁷

The stakes are higher with foreign vendors. Under IRC Section 1441, payments of U.S.-source income to a foreign person are subject to a default withholding rate of 30%.⁸ A valid W-8 can reduce that rate or eliminate it under a treaty. Without one on file, you withhold at the full 30%.

When a Domestic Vendor Refuses to Provide a W-9

When a U.S. vendor won’t provide a W-9, or provides one with a missing or incorrect TIN, you can’t skip the 1099 and move on. The IRS expects you to start backup withholding at 24% on all reportable payments to that vendor.⁹

Backup withholding also applies when the IRS sends a “B notice” that a vendor’s TIN doesn’t match their records, or when the IRS notifies you that the vendor has been underreporting interest or dividend income. Keep withholding at 24% until the vendor provides a valid, certified W-9.

Withheld amounts are reported and deposited using Form 945, the annual return for withheld federal income tax from nonpayroll payments. Most businesses deposit monthly; businesses withholding more than $50,000 annually deposit on a semiweekly schedule. If the total is under $2,500 for the year, you can pay it with the Form 945 itself.¹⁰

The vendor gets credit for the withheld amount on their own return, so they’re not permanently out the money. But failing to withhold when required can leave your business on the hook for the tax, plus penalties.

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Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification
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Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information
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Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return
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Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
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Internal Revenue Service. Form W-9 (Rev. March 2024)
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Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill
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Internal Revenue Service. About Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)
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Office of the Law Revision Counsel. 26 U.S. Code 1441 – Withholding of Tax on Nonresident Aliens
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Internal Revenue Service. Topic No. 307, Backup Withholding
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Internal Revenue Service. Instructions for Form 945