1099 season: collect W-9s before you need them

Every January the same email goes out from thousands of small businesses: "Hi, sorry to bother you, but I need your tax information to send a 1099." It goes to a contractor who wrapped up in March, has since moved twice, and changed their business name. A few reply within a week. Some never answer at all. And the entire scramble was avoidable, because the single piece of paper that ends it should have been collected before the first invoice was ever paid.

1099 season feels like a crisis because most founders treat it as a January project. It isn't. It is an onboarding habit that happens to get filed in January.

What a 1099-NEC actually covers

Form 1099-NEC — the NEC stands for Nonemployee Compensation — is the form you file to report money you paid to people who worked for you but are not your employees. The rule is simple to state: for most vendors and contractors you paid $600 or more during the calendar year for services, you file a 1099-NEC. One copy goes to the recipient, one goes to the IRS.

A few boundaries matter. It is for services, not goods — the $8,000 you paid a supplier for inventory does not get a 1099. It is for nonemployees; actual employees get a W-2 instead. And payments to corporations are generally exempt, with a notable exception for attorneys, who get a 1099 regardless of how their firm is organized. Knowing which vendors are even in scope requires one thing: knowing how each vendor is legally set up. That information lives on the W-9.

The W-9 is the whole game

A W-9 is a short form the vendor fills out and hands to you. It gives you everything you need to file later: their legal name, their taxpayer identification number (TIN — either a Social Security number for an individual or an Employer Identification Number for a business), their address, and their entity type. That last field — sole proprietor, single-member LLC, S-corp, partnership — is what tells you whether a 1099 is required at all.

The fix for the annual mess is to collect the W-9 before you pay the first invoice, not after the year ends. Make it a condition of onboarding, in the same breath as agreeing on the rate. A vendor who wants to get paid will send a W-9 in a day. A vendor who finished the job eleven months ago has no reason to hurry.

There is also a real financial risk in skipping it. If you pay a vendor without a valid TIN — it is missing, or it is wrong and the IRS flags the mismatch — you can be required to apply backup withholding. That means holding back 24% of what you owe the vendor and remitting it to the IRS on their behalf. Now you are the one explaining to a contractor why their $5,000 invoice paid out at $3,800. Collecting the W-9 up front makes that conversation impossible to need.

Do not report what the processor already reported

Here is the trap that catches careful people. If you paid a contractor by credit card, PayPal, or any third-party payment network, that payment is already reported to the IRS — by the processor, on a separate form called the 1099-K. You do not report it too. If you do, the contractor's income is counted twice, and they get a notice from the IRS asking why they underreported.

So only payments you made directly — cash, check, or ACH bank transfer — count toward the $600 threshold and belong on the 1099-NEC. Card and platform payments are excluded. This is not optional bookkeeping tidiness; it is the difference between a clean filing and a contractor's tax problem that traces back to you.

A worked example

Take a freelance designer you used all year. You paid them $9,200 in total, split by how the money moved:

• Total paid across the year: $9,200
• Paid by check and ACH: $6,000
• Paid by company credit card: $3,200
• Reported by your card processor on a 1099-K: $3,200
• What you report on the 1099-NEC: $6,000

You file a 1099-NEC for $6,000, because that is what you paid directly, and the card company reports the $3,200 on its own 1099-K. Everything ties out. Now picture the careless version: you pull the vendor's total from your books and file for the full $9,200, while the processor still files its $3,200. On paper the designer earned $12,400, and they spend part of their spring proving to the IRS that $3,200 of it never existed — a mess that traces straight back to you.

The process that makes January boring

None of this is hard once it stops being a year-end event. The goal is a short, repeatable sequence that runs the moment a new vendor appears, so that by January you have nothing left to chase.

• Onboard the vendor: before the first payment, treat the W-9 as part of setup, like agreeing on the rate or the scope.
• Collect the W-9: get the legal name, TIN, address, and entity type in writing, and store it where your finance team can find it.
• Verify the TIN: confirm the name and number match IRS records — the IRS offers a free TIN Matching service — so a typo does not surface as backup withholding later.
• Tag the vendor as 1099-eligible: flag it in your accounting software right then, so the system tracks direct payments toward the $600 threshold all year.
• File in January: run the 1099 report, confirm each eligible vendor cleared $600 in direct payments, and file by the deadline.

That deadline is January 31, and it is firm: recipient copies and the IRS copy are both due by then. But if you did the first four steps as vendors came in, January is not a crisis. It is a report you run, review, and send — an afternoon, not a manhunt. The work of 1099 season was never the filing. It was the information you either gathered in advance or spent three weeks begging for.