Vendor onboarding: W-9, W-8BEN and TIN matching
What to collect before a vendor's first payment, how TIN Matching works, and what 24% backup withholding looks like in the books.
Every vendor is set up once, before the first payment, in the vendor master: legal name, tax classification, taxpayer identification number, bank details, terms, and who approved the setup. The tax part comes from one IRS form for a US vendor and another for a foreign one, and collecting it at onboarding is what makes year-end 1099s a report rather than a chase.
Step 1: Collect the tax form
A Form W-9 from a US person (an individual, LLC, partnership or corporation). A foreign individual signs a Form W-8BEN; a foreign entity, a W-8BEN-E.
Step 2: Match the TIN
Run the name and TIN through IRS TIN Matching for anyone who may get a 1099. A mismatch found now is a phone call; found in January, it is a late form.
Step 3: Record the classification
Line 3a of the W-9 says whether the vendor is an individual, a partnership, an LLC or a corporation. That box decides whether a 1099 is needed at all.
Step 4: Take bank details, then verify them
Bank details come from the vendor on a signed form or through the bill-pay tool, and are confirmed by calling a number you already had. Never from an email alone.
Step 5: Approve the vendor
Someone other than the person who will pay the vendor approves the setup. That is segregation of duties at its smallest.
A vendor who never gives a correct TIN is subject to backup withholding: the payer keeps back 24% of each reportable payment for the IRS. The sub-page on backup withholding works one through Northwind's books.
TIN Matching
The IRS runs a free check of name and TIN pairs for payers who file information returns. It answers one question, whether the pair matches IRS records, and says nothing about what the right number is. Run it at onboarding, and again when a vendor's name or entity type changes.
At onboarding, as a condition of payment
- Good at
- The vendor still wants to be paid, so the form comes back
- TIN Matching runs before any 1099 is filed
- Backup withholding never has to start
- Watch for
One more step before a vendor can be paid
- Best for
- Every vendor who might receive a reportable payment
In January, before 1099s
- Good at
Nothing up front
- Watch for
- The vendor has been paid, so your request is last on their list
- A missing TIN means the payments should already have been backup-withheld
- The 1099 deadline does not move
- Best for
- No one
In this lesson: backup withholding, worked through the books; and foreign vendors, with the W-8BEN and when it lapses.
Pages in this lesson
2 pages go deeper, about 10 minutes in all. Read them in order, or open the one you need.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- IRS guidance
- IRC §3406; IRS — Backup withholding (opens in a new tab)Backup withholdingFree to read
- IRS — Taxpayer Identification Number (TIN) Matching (opens in a new tab)TIN MatchingFree to read
- Official form
- Form W-9 (Rev. March 2024), What is backup withholding? (opens in a new tab)Form W-9, Request for Taxpayer Identification Number and CertificationPDF · Free to read
- Form W-9 (Rev. March 2024), Foreign person (opens in a new tab)A foreign person does not give a W-9PDF · Free to read
- Form W-8BEN (Rev. October 2021) (opens in a new tab)Form W-8BEN, Certificate of Foreign Status of Beneficial Owner (Individuals)PDF · Free to read
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Vendor masterThe record of every approved vendor — legal name, tax classification, TIN, tax form on file, bank details, default terms and who approved the setup. Bank details are versioned, never overwritten
- Form W-9The IRS form a US payee gives a payer to certify its name, tax classification and taxpayer identification number — collected before the first payment, because it drives 1099 reporting and backup withholding
- Form W-8BENThe certificate a foreign individual gives a US payer, in place of a Form W-9, to establish foreign status. Entities use Form W-8BEN-E. Generally in effect until the last day of the third calendar year after the year it is signed
- TIN matchingThe IRS e-Services check of a payee's name and taxpayer identification number against IRS records, open to payers who file information returns. It says whether the pair matches, not what the right number is
- Backup withholdingFederal income tax a payer must withhold at 24% from reportable payments — contractor fees, interest, dividends, card settlements — when the payee has not given a correct TIN or the IRS has notified the payer to withhold. Deposited and reported on Form 945
- PayeeThe party receiving a paymentConvention
- VendorA party we buy fromConvention
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Procure to pay (AP)The payables stack from requisition to reconciliation: requisition → PO → receipt → bill → approval → payment → reconciliation.
- IBAN, routing, VAT, EINCheck an IBAN, routing number, VAT, EIN, ISIN or LEI offline, by format and checksum.
- W-9s and backup withholding: a vendor onboarding guideWhen to ask for a W-9, how IRS TIN matching works, and what happens when a vendor won’t give you one: 24% backup withholding, owed by you.
- Contractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- VendorMasterBank details versioned, never overwritten.
- TaxFormTrackerVendors over the reporting threshold, with W-9 and TIN-match state.