How do I handle contractor payments and 1099s?
The process starts before you ever make a payment. Collect a W-9 from every contractor before you pay them anything. The W-9 gives you their legal name, address, and tax identification number. You need this information to file 1099s at year-end. Chasing contractors for W-9s in January when you’re trying to file is frustrating and often unsuccessful.
Track payments by contractor throughout the year in your accounting software. Set up each contractor as a vendor and record every payment to them. Don’t wait until December to figure out who you paid and how much. QuickBooks and Xero both make this easy if you’re consistent about entering payments correctly.
The 1099-NEC form is required for any contractor you paid $600 or more during the calendar year. Only business payments count. The threshold applies per contractor, so if you paid someone $500, no form is needed. If you paid them $700, you file.
The deadline is January 31 for both the contractor’s copy and the IRS filing. This is a hard deadline with no automatic extensions. Miss it and penalties start at $60 per form and go up from there depending on how late you are.
Payments made by credit card, debit card, or through payment platforms like PayPal or Venmo don’t require a 1099-NEC from you. The payment processor reports those transactions on 1099-K instead. But checks, ACH transfers, and cash payments all require you to file.
Keep W-9s on file for at least four years. The IRS can request them during an audit to verify the information you reported on 1099s.
If you’re not sure whether someone is a contractor or an employee, the distinction matters. Misclassifying employees as contractors creates liability for unpaid payroll taxes, penalties, and interest. The IRS looks at how much control you have over the worker and whether they work for other clients. When in doubt, consult a tax professional before treating someone as a contractor.
The best approach is building 1099 tracking into your regular small business bookkeeping routine. Collect W-9s before first payment, categorize contractor expenses properly, and run a vendor payment report in December to see who crossed the $600 threshold. Do this consistently and year-end filing takes an hour instead of a full day of detective work.
If tracking contractor payments feels like one more thing you don’t have time for, full-service bookkeeping can handle the tracking and reporting so January doesn’t turn into a scramble.
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