Can I Refuse to Fill Out a Form W-9?
Before you refuse a W-9 request, understand the payer's tax reporting duties and the financial consequences that result from non-compliance.
When an independent contractor is presented with a Form W-9, it is a routine part of doing business. While providing the form is standard practice, understanding the reasons for the request and the outcomes of not providing it is important. The short answer is that while you can refuse, that choice has direct financial consequences.
The Purpose of a W-9 Request
A business issues a Form W-9, Request for Taxpayer Identification Number and Certification, to fulfill its tax reporting duties. The IRS requires a business that pays a non-employee, such as an independent contractor, $600 or more for services during a calendar year to file an information return. The W-9 is the document used to collect the payee’s legal name, business name (if different), address, and Taxpayer Identification Number (TIN).
An individual’s TIN is typically their Social Security Number (SSN), while a business entity provides its Employer Identification Number (EIN). The payer uses the completed W-9 to prepare a Form 1099-NEC, Nonemployee Compensation. A copy of the 1099-NEC is sent to the contractor and the IRS, but the W-9 itself is kept on file by the payer.
Consequences of Refusing to Provide a W-9
Refusing to fill out a Form W-9 when required results in backup withholding. If a payee does not provide a TIN, the payer is mandated by the IRS to withhold a portion of the payments. This is not an extra tax but a prepayment of federal income tax, which the payer remits directly to the IRS.
The current backup withholding rate is a flat 24%. This means for every $1,000 earned, the client would deduct $240 and send it to the IRS, and the contractor would receive the remaining $760. This withholding will continue on all future payments until a correct W-9 is provided. The total amount withheld is reported on the Form 1099-NEC that the contractor receives.
While the money is not lost, it does affect cash flow. The contractor can claim the amount withheld as a tax payment on their annual income tax return, such as on Form 1040. Willfully providing false information on a W-9 can lead to civil and criminal penalties, including fines and imprisonment.
Legitimate Reasons for Not Providing a W-9
There are specific circumstances where a person or entity should not provide a Form W-9. The primary reason is if the payee is not considered a “U.S. person” for federal tax purposes, a category that includes nonresident aliens and foreign entities like corporations created outside the United States.
Instead of a W-9, a foreign person or entity should provide the appropriate form from the W-8 series, such as Form W-8BEN for individuals or W-8BEN-E for entities. These forms establish foreign status and may be used to claim a reduced rate of, or exemption from, U.S. tax withholding under a tax treaty.
Another scenario involves U.S. entities that are “exempt payees” under IRS rules, such as most C or S Corporations and tax-exempt organizations. These payees are exempt from backup withholding but are still required to complete a Form W-9 to certify their status. On the form, they must enter the appropriate exempt payee code to inform the payer why backup withholding is not required.