Backup withholding requires a business to withhold a flat percentage of a payment to a contractor and send it directly to the IRS, triggered when the contractor didn't provide a valid taxpayer ID or the IRS has flagged their information as incorrect.
Exactly why collecting a properly completed W-9 from every contractor before the first payment matters: a missing or clearly invalid taxpayer ID on file is one of the main triggers for backup withholding, forcing the company to start withholding on future payments until the problem is resolved.
A comparatively rare situation for most startups, since most contractors provide valid information upfront, but it's a real obligation the company itself is responsible for enforcing, not the contractor. A company that ignores a backup withholding notice takes on real liability for the tax that should have been withheld.
Prepared by the same team that keeps your books, with credits you may already be owed caught along the way. Built by founders, investors, CPAs and startup people.