Legal requirements for W-9's
It is fully legal and common business practice to require a completed W-9 before issuing payment.
- The IRS requires payers to request a correct TIN (via a W-9) from anyone they pay for services.
- If a vendor refuses to provide a W-9, the IRS mandates backup withholding at a flat 24% on payments made without a valid TIN. This is not optional.
- The IRS does not require a business to process payments without proper documentation - placing a vendor “on hold” until a W-9 is received is a widely accepted compliance safeguard. In fact, many advisory sources state that the best practice is to “never pay anyone a penny until the W-9 is received.”
*It would be considered non-compliant to pay vendors without a W-9 and to fail to perform mandatory IRS backup withholding.
Because Kesef cannot administer backup withholding consistently across all clients, our policy of requiring the W-9 upfront is actually the only operationally safe and legally aligned approach.
Concerns about the new $2,000 1099 threshold
The new law (One Big Beautiful Bill Act) raises the 1099 NEC and 1099 MISC reporting threshold from $600 to $2,000 starting in 2026. This does reduce the number of 1099s that need to be issued, but it does not eliminate the need to collect W-9s.
- Even though many smaller vendors (e.g., $25–$50 payments) may end up below the $2,000 threshold, we cannot know that in advance, especially early in the year.
- All vendors, regardless of amount, must still be set up properly for compliance, and the IRS continues to require proper TIN solicitation for all service payments.
- W-9s remain essential because backup withholding rules continue to apply when a vendor refuses to provide a TIN, even under the new thresholds.
Kesef's W-9 Go Forward Practices
- Require W-9 at vendor onboarding. No exceptions. This is standard industry practice and avoids all year end scrambling. Introducing W-9 collection before any payment is ever issued is the simplest way to stay compliant.
- We encourage clients to adopt the same policy internally. When clients make payments “in house,” they must follow the same W-9 rules. Otherwise, both Kesef and our clients scramble to obtain these W-9's at year-end.