Collecting W-9s and Filing 1099-NEC Forms
Every US business that pays independent contractors more than $600 in a calendar year has a 1099-NEC filing obligation. The hard part isn't the filing itself — it's the upstream collection of W-9 forms from every vendor, validation that the TIN they reported actually matches IRS records, and remembering to do all of this before January 31 when the filing deadline hits. Businesses that scramble in January routinely miss vendors, file with wrong TINs, and get hit with penalties. This guide walks through a proactive 1099 workflow that turns year-end into a non-event.
Step 1: Collect W-9 before the first payment
The single most effective change you can make is to require a W-9 before issuing the first payment to any new vendor. Make it part of vendor onboarding: when a vendor sends their first invoice, your AP team responds with "we need a completed W-9 before we can release payment." This sounds aggressive but it's industry-standard and vendors expect it. Once payment is sitting in the future, vendors return W-9s within 1-2 business days. After payment goes out, you lose all leverage and W-9s become a January scramble.
Step 2: Know who needs a 1099
Not every vendor needs a 1099-NEC. The rules:
- Required: US individuals, partnerships, and most LLCs paid $600+ for services in a calendar year
- Not required: payments to C-corporations or S-corporations (with limited exceptions — legal fees and medical payments always require 1099 regardless of entity)
- Not required: payments made by credit card or third-party processor (those are reported on 1099-K by the processor, not by you)
- Not required: payments for goods (vs services) — only services trigger 1099-NEC
- Not required: payments to foreign vendors — but you may need to collect a W-8BEN and potentially withhold
Step 3: Validate TINs before filing
The IRS provides a free TIN Matching service that lets you check whether a name+TIN combination matches their records. Validating before filing avoids the cascade where you file a 1099 with a mismatched TIN, the IRS sends a CP2100 notice, you have to send a B-notice to the vendor, and potentially start backup withholding (24% of future payments) until they correct it. Run TIN matching once when you collect the W-9 and again in November before filing.
Step 4: File by January 31
1099-NEC forms must be:
- Furnished to the recipient by January 31
- Filed with the IRS by January 31 (yes, both deadlines are the same date for NEC)
- Filed electronically if you have 10 or more total information returns (lowered from 250 in 2024)
- Filed using the IRS's IRIS system, or through a transmitter like Track1099, Tax1099, or your accounting software
Step 5: Penalties for missing or wrong filings
Penalties scale based on how late you file and whether the failure was intentional:
- Within 30 days late: $60 per form (2025 rate)
- 31 days to August 1: $130 per form
- After August 1 or not filed: $330 per form
- Intentional disregard: $660 per form (no maximum cap)
Step 6: Don't forget state filings
About 35 US states have their own 1099 filing requirements that mirror or differ from federal. Some states participate in the IRS's Combined Federal/State Filing program (one file covers both), others require a separate state submission. If you have vendors in multiple states, check each state's department of revenue site or use a filing service that handles state submissions automatically.
Frequently asked questions
Do I issue 1099-NEC to an LLC?
It depends on the LLC's tax election. Single-member LLCs and partnership-LLCs get 1099-NEC. LLCs that elected S-corp or C-corp tax treatment do NOT get 1099-NEC (with the same exceptions as other corps: legal fees and medical always). The W-9 box-3 election tells you which is which.
What if a vendor refuses to give me a W-9?
You're required to begin backup withholding at 24% on all future payments until they provide a valid W-9 and TIN. Most vendors return a W-9 immediately when this is explained. If they still refuse, withhold and remit the backup withholding to the IRS through Form 945.
Do I need a 1099 for payments made by credit card?
No. Credit card payments are reported on 1099-K by the card processor (Stripe, Square, etc.). You issue 1099-NEC only for payments by check, ACH, wire, or cash that meet the $600 threshold.
What about payments to international (non-US) contractors?
Non-US contractors don't get 1099-NEC. Instead, collect a Form W-8BEN (for individuals) or W-8BEN-E (for entities) certifying their non-US status. Depending on the payment type and treaty status, you may need to withhold at 30% (or a treaty rate) and file Form 1042-S annually.
Can I file 1099s on paper if I have less than 10?
Since the 2024 filing year, the IRS threshold for electronic filing dropped to 10 returns total. If you have fewer than 10 information returns across all types (1099, W-2, etc.), paper filing is still allowed. Above 10, electronic is mandatory.
When do I have to send corrections?
If you discover an error after filing — wrong amount, wrong TIN, wrong name — file a corrected 1099 as soon as you discover the error. There's no penalty for prompt correction; there is a penalty for never correcting.
This guide is general information about US 1099 reporting and is not tax or legal advice. Penalty rates and procedural requirements change — consult a CPA or tax attorney for your specific situation.
