What to Do If a Contractor Won’t Provide a W-9?

If a contractor won’t provide a W-9, federal law requires you to withhold 24% of every reportable payment and send it to the IRS as backup withholding.¹ Before you get there, though, you have room to solve the problem a cheaper way: document your requests, hold payment if your contract allows, and give the contractor a clear choice between handing over a taxpayer identification number or losing nearly a quarter of their check. The liability for getting this right sits with you, not with them.

Ask in Writing and Keep the Paper Trail

Start by requesting the W-9 in writing, ideally before the first payment goes out. If the contractor ignores you, follow up in writing again. Save every email, letter, and text.

Those records are not busywork. If the IRS later asks why a 1099 you filed has a missing or wrong TIN, your documented requests are the evidence that supports a reasonable cause defense. The regulation specifically looks at whether you made an initial solicitation when the relationship began and annual solicitations after that while the TIN was missing.² Verbal reminders don’t count for much. Written ones do.

Make the W-9 a Condition of Payment

The strongest fix is contractual. A clause making a completed W-9 a condition of payment eliminates most of these situations before they start. You are not required to pay a contractor who refuses to provide tax identification, and many businesses simply hold the first check until the form arrives.

If you’re already mid-engagement and the contractor has stopped cooperating, this option narrows. You still have the leverage of backup withholding, which does much of the same work by making non-cooperation visibly expensive for the contractor.

Verify What They Give You

A W-9 that arrives with a wrong TIN is almost as bad as no W-9. The IRS runs a free TIN Matching Program through e-Services that lets you check a name and number against IRS records before you file anything. Interactive matching handles up to 25 combinations at a time with instant results; bulk matching takes up to 100,000 and returns results within 24 hours.³

Catching a mismatch before you file a 1099 avoids the penalty and the IRS B-Notice process entirely. It’s a short step that saves a long one.

Start Backup Withholding at 24%

When a contractor won’t provide a TIN, gives you one that doesn’t match IRS records, or the IRS notifies you that the TIN is wrong, you must begin withholding 24% of the gross payment and remitting it to the IRS.¹ This isn’t optional, and the contractor’s objections don’t change it. The obligation sits with the payer.

Practically, on a $10,000 project the contractor receives $7,600 and the IRS receives $2,400. The withheld money isn’t lost to the contractor — they claim it as a credit on their income tax return — but the cash flow hit is usually what finally produces the W-9.

Backup withholding continues until the contractor provides a properly completed and signed W-9 with a correct TIN, or until the IRS tells you to stop.⁴ There’s no built-in time limit. Some contractors stay under withholding for years because they never resolve it.

One nuance worth noting: the $600 threshold for filing a 1099-NEC still matters here.⁵ If a contractor will clearly stay under that amount for the year, the reporting (and therefore the withholding) doesn’t apply. In practice, most businesses collect W-9s up front from everyone, because in January you rarely know who will cross $600 by December.

How to Deposit and Report What You Withhold

Withheld funds go to the IRS electronically, typically through the Electronic Federal Tax Payment System. Classify them as Form 945 non-payroll tax, not as payroll tax.

Your deposit schedule depends on the volume:⁶

Under $2,500 for the year: pay the full amount when you file Form 945, no deposits needed during the year.
Monthly depositor (prior-year Form 945 total of $50,000 or less): deposit by the 15th of the following month.
Semiweekly depositor (prior-year total above $50,000): payments made Wednesday through Friday are due the following Wednesday; payments made Saturday through Tuesday are due the following Friday.
$100,000 next-day rule: if accumulated liability reaches $100,000 on any single day, deposit the next business day regardless of your usual schedule.

At year end, file Form 945 to report all backup withholding.⁷ The deadline is January 31, pushed to the next business day if that falls on a weekend. If every required deposit was made on time, you get an automatic extension to February 10.⁶

On the contractor’s 1099-NEC, put the full gross payment in Box 1 and the withheld amount in Box 4.⁵ The total on your Form 945 should reconcile with the sum of Box 4 across every 1099-NEC you file.

What It Costs You If You Don’t

Ignoring the problem is where businesses get hurt. The penalties stack.

If you should have been withholding and weren’t, you owe the IRS the full 24% that should have come out of every payment, plus interest. The money comes from your business, not from the contractor. Most payers assume the tax risk belongs to the contractor; the IRS doesn’t see it that way.

Late deposits bring their own penalties:⁸

1 to 5 days late: 2% of the unpaid amount
6 to 15 days late: 5%
More than 15 days late: 10%
More than 10 days after the first IRS notice demanding payment: 15%

Filing a 1099-NEC with a missing or wrong TIN carries a separate penalty per return. For returns due in 2026:⁹

Corrected within 30 days: $60 per return
Corrected after 30 days but by August 1: $130 per return
Corrected after August 1 or never filed: $340 per return
Intentional disregard: $680 per return or 10% of the income that should have been reported, with no cap

Ten uncorrected 1099s filed after August 1 is $3,400 in information-return penalties alone, before any withholding liability or interest.

If You Already Missed the Window: Reasonable Cause

Penalties can be waived if you show reasonable cause — that the failure wasn’t due to willful neglect. You have to demonstrate significant mitigating factors or events beyond your control, and you have to show you acted responsibly before and after the failure.²

For a missing TIN, acting responsibly means following the solicitation schedule the regulation lays out:

Initial solicitation when the contractor relationship begins.
First annual solicitation by December 31 of the year the relationship started, if the TIN is still missing.
Second annual solicitation by December 31 of the following year, if it’s still missing after that.

Keep every piece of correspondence. The IRS does not take your word for it. The businesses that lose reasonable cause arguments are the ones that treated W-9 collection as an afterthought and have nothing in writing to show.

One Boundary: Foreign Contractors Are a Different Form

The W-9 only applies to U.S. persons. If your contractor is a foreign individual or entity, the correct form is a W-8BEN (or another form in the W-8 series), and the default withholding rate without one is 30%, not 24%.¹⁰ If you discover a contractor you’d treated as domestic is actually foreign, switch to the W-8 process immediately rather than continuing down the W-9 path.

1
Internal Revenue Service. Backup Withholding
2
eCFR. 26 CFR 301.6724-1 – Reasonable Cause
3
Internal Revenue Service. Taxpayer Identification Number (TIN) Matching Tools
4
Internal Revenue Service. Fast Facts to Help Taxpayers Understand Backup Withholding
5
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
6
Internal Revenue Service. Instructions for Form 945 (2025)
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Internal Revenue Service. About Form 945, Annual Return of Withheld Federal Income Tax
8
Internal Revenue Service. Failure to Deposit Penalty
9
Internal Revenue Service. Information Return Penalties
10
Internal Revenue Service. Tax Withholding Types