If you pay an independent contractor for work done for your business, the paperwork has a simple order: get a completed Form W-9 from the contractor before you pay them, track what you pay them over the year, and then send them (and the IRS) a Form 1099-NEC after year-end if the total meets the reporting threshold. Skip the W-9 and you can end up owing the IRS a percentage of what you paid the contractor, out of your own pocket. This page walks through that paperwork step by step. It does not cover how to decide whether a worker is legally a contractor or an employee — that's a separate, and more important, question. See the discussion of employee versus independent contractor classification for that piece, and treat this page as what happens after you've correctly decided someone is a contractor.
Step 1: Get a Form W-9 before you pay anyone
Form W-9, "Request for Taxpayer Identification Number and Certification," is a short form the contractor fills out and gives back to you. It captures their legal name, business name (if any), federal tax classification, and their taxpayer identification number (TIN) — usually a Social Security number for a sole proprietor or an Employer Identification Number for a business.
Ask for the W-9 before you make the first payment, not in January when you're scrambling to file. Reasons this matters:
You need the contractor's correct TIN to prepare an accurate 1099-NEC. A missing or wrong TIN can get your form rejected or generate an IRS notice.
If a contractor won't give you a W-9, you may be required to start backup withholding on their payments (more below) — something that's very hard to fix retroactively once you've already paid them in full.
The W-9 also tells you their entity type, which affects whether you need to send them a 1099-NEC at all (payments to most corporations are generally excepted, though there are exceptions to that exception — attorneys' fees are a commonly cited example. Confirm current rules on irs.gov or with a tax professional rather than assuming).
You do not send the W-9 to the IRS. You keep it in your own records.
Step 2: Track payments and figure out who needs a 1099-NEC
Form 1099-NEC, "Nonemployee Compensation," is the form you file to report what you paid a contractor for services during the year — fees, commissions, and similar payments for work done for your trade or business. Generally, it applies when you paid a non-employee individual, partnership, or (in some cases) an LLC or estate for services, the payment was for business purposes, and the total for the year reached the IRS's reporting threshold.
That dollar threshold is set by federal law, is subject to change, and was in fact changed by recent legislation. Do not rely on a number you remember or saw somewhere else; look up the current threshold directly on irs.gov before deciding whether a given contractor needs a form. The same goes for which payment methods are covered — payments you make by credit card, debit card, or through a third-party payment network are typically reported by the payment processor on a different form (1099-K) instead of by you on a 1099-NEC, which is one reason to check the current IRS guidance rather than guess.
A few practical habits that make this step painless:
Keep a running total per contractor as you pay them throughout the year, rather than trying to reconstruct it from bank statements in January.
Use the W-9 on file to know exactly whose name and TIN goes on each form.
If a contractor is paid through several different projects or invoices, add up all payments to that person for the year — the threshold applies to the total, not to each individual payment or invoice.
Step 3: File the 1099-NEC with the IRS and send a copy to the contractor
After year-end, for each contractor who meets the threshold, you generally need to do two things: furnish a copy of the 1099-NEC to the contractor, and file a copy with the IRS. There are specific deadlines for both, and specific rules about e-filing once you're issuing a certain number of forms.
Exact deadlines and e-filing thresholds change and are easy to get wrong — confirm the current-year dates and rules on irs.gov before you file, rather than relying on last year's deadline. Filing late, or not filing at all, can result in IRS penalties that increase the longer the form goes unfiled — again, check irs.gov for the current penalty amounts rather than guessing.
Most small businesses either file 1099-NECs through IRS-approved e-file software, through a payroll or bookkeeping service that offers 1099 filing, or on paper for a small number of forms (paper filing is increasingly restricted as the number of forms goes up). The IRS's own online portal for information returns is a free option worth checking before you pay for third-party software.
Backup withholding: what happens if a contractor won't give you a TIN
If a contractor refuses to give you a W-9, gives you an obviously incorrect TIN, or the IRS notifies you that the TIN they gave you doesn't match their records, you may be legally required to start "backup withholding." That means withholding a flat percentage of future payments to that contractor and sending it to the IRS on their behalf, rather than paying them the full amount.
The backup withholding percentage is set by federal law and is subject to change; confirm the current rate on irs.gov rather than relying on a number from memory or a third-party site. If you're ever in this situation — a contractor won't provide a TIN, or you get a "B notice" from the IRS about a mismatched name/TIN combination — the IRS's own backup withholding guidance walks through exactly what you're required to do and by when. This is a genuine compliance obligation, not optional caution: if you're required to withhold and don't, the IRS can hold you, the payer, responsible for the tax that should have been withheld.
What to do — a simple sequence
Before the first payment: give every contractor a Form W-9 to fill out and return. Don't pay until you have it back.
Throughout the year: keep a running total of payments per contractor, and hang on to invoices and payment records.
If a contractor won't provide a TIN or gives one the IRS flags as mismatched: look up your backup withholding obligations on irs.gov and start withholding if required.
After year-end: check the current IRS threshold and rules to see which contractors need a 1099-NEC, then furnish copies to those contractors and file with the IRS by the current deadlines (confirm both on irs.gov — they are not the same thing, and missing either one matters).
Keep copies of every W-9 and every 1099-NEC you file, along with your underlying payment records, for your own files.
This paperwork exists independent of the harder question of whether someone should legally be treated as a contractor at all. A signed contract or an agreed job title doesn't settle that question — the real working relationship does, under tests used by the IRS and the U.S. Department of Labor, and some states apply an even stricter test. Getting the classification wrong can mean back payroll taxes, penalties, and unpaid wage liability regardless of how carefully you handled the 1099 paperwork on top of it. If you're not confident a given worker is genuinely a contractor and not an employee, that's worth resolving with a qualified accountant or attorney before you worry about which form to file.
Frequently asked questions
Do I need a W-9 from every contractor, even a small one-time job?
It's a good habit to collect one from anyone you pay for business services before the relationship goes further, since you won't know in advance whether their total payments for the year will cross the reporting threshold. It's much easier to ask upfront than to chase someone down in January.
What if the contractor is a corporation?
Payments to most corporations are generally excepted from 1099-NEC reporting, but there are recognized exceptions (payments to attorneys are a commonly cited one), and entity type can be more complicated than it looks — an LLC, for example, can be taxed as a corporation, a partnership, or a disregarded sole proprietorship depending on elections it has made. The W-9 the contractor gives you should indicate their federal tax classification. When in doubt, confirm current rules on irs.gov or ask a tax professional rather than assuming a payment is excepted.
What happens if I never got a W-9 and now I don't have the contractor's TIN?
You can still ask for it, and you may be required to under the backup withholding rules if they don't respond. You generally cannot file an accurate 1099-NEC without a correct TIN, so this is worth resolving before your filing deadline rather than after.
Is a 1099-NEC the same as a 1099-MISC?
No. Form 1099-NEC is specifically for reporting nonemployee compensation (payments for services), while Form 1099-MISC covers other kinds of payments, such as rent or certain legal settlements. Check the current IRS instructions for both forms if you're not sure which applies to a particular payment.
Does issuing a 1099-NEC mean the IRS has "approved" this person as a contractor rather than an employee?
No. Filing a 1099-NEC is just a reporting form — it doesn't establish or confirm that someone is correctly classified as an independent contractor. If the underlying relationship actually looks like employment, filing 1099s instead of running payroll doesn't protect you; it can be evidence of misclassification if the IRS or a state agency later reviews the relationship.
This is general business and tax information, not legal, tax, or financial advice, and using it doesn't create an attorney-client or accountant-client relationship. For guidance specific to your business, talk with a qualified accountant or attorney, or use free resources like the IRS's own guidance at irs.gov, the U.S. Small Business Administration (sba.gov), or your local SCORE chapter or Small Business Development Center.
Frequently asked questions
Do I need a W-9 from every contractor, even a small one-time job?
It's a good habit to collect one from anyone you pay for business services before the relationship goes further, since you won't know in advance whether their total payments for the year will cross the reporting threshold. It's much easier to ask upfront than to chase someone down in January.
What if the contractor is a corporation?
Payments to most corporations are generally excepted from 1099-NEC reporting, but there are recognized exceptions (payments to attorneys are a commonly cited one), and entity type can be more complicated than it looks since an LLC can be taxed as a corporation, a partnership, or a disregarded sole proprietorship. The W-9 should show the contractor's federal tax classification; confirm current rules on irs.gov if you're unsure.
What happens if I never got a W-9 and now I don't have the contractor's TIN?
You can still ask for it, and you may be required to under the backup withholding rules if they don't respond. You generally cannot file an accurate 1099-NEC without a correct TIN, so resolve this before your filing deadline, not after.
Is a 1099-NEC the same as a 1099-MISC?
No. Form 1099-NEC is specifically for reporting nonemployee compensation for services, while Form 1099-MISC covers other kinds of payments such as rent. Check the current IRS instructions for both forms if you're unsure which applies.
Does issuing a 1099-NEC mean the IRS has approved this person as a contractor rather than an employee?
No. Filing a 1099-NEC is just a reporting form and doesn't establish that someone is correctly classified. If the real relationship looks like employment, filing 1099s instead of running payroll doesn't protect you and can be evidence of misclassification if reviewed later.
This article is general legal information, not legal advice, and may not reflect the most current law or the law in your jurisdiction. Laws vary by state and change over time. For advice about your specific situation, consult a licensed attorney.
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