1099-NEC: what small businesses need to collect before January

Every January a predictable scramble begins: businesses discover they paid a contractor $14,000 during the year and have no current address, no taxpayer identification number and no signed W-9. It is entirely avoidable with one habit.

The habit

Collect a completed Form W-9 before the first payment to any new vendor. Not after the first invoice, not at year end. No W-9, no payment. Businesses that adopt this rule stop having a January problem permanently.

Who generally receives a 1099-NEC

• Individuals, sole proprietors, partnerships and most LLCs you paid $600 or more during the calendar year for services
• Attorneys, in most circumstances, regardless of entity type
• Payments made by cash, check or ACH

Who generally does not

• Payments for goods and merchandise rather than services
• Most C and S corporations (attorneys being the usual exception)
• Payments processed through a payment card or third-party network, which are reported by the processor on Form 1099-K

That last point is where most double reporting occurs. If you paid a contractor by credit card, you generally do not also issue them a 1099-NEC.

The deadlines to know

Form 1099-NEC is normally due to both the recipient and the IRS by January 31. There is no automatic extension for the recipient copy. State filing requirements vary, and several states have their own deadlines and thresholds.

Four mistakes we see every year

1. Reporting the wrong amount. The figure is what was actually paid during the calendar year, not what was invoiced.
2. Including card payments. Reported separately by the processor; including them double-counts the contractor's income.
3. Stale addresses. A returned form does not remove your filing obligation.
4. Untracked reimbursements. Expense reimbursements to contractors under an accountable arrangement should be separated from service fees throughout the year, not untangled in January.

How we handle it for clients

W-9s are requested at vendor setup and stored in the portal. Contractor payments are tagged every month, so the reportable total is already correct on January 2. We deliver a checked data file to your filing agent or CPA in the first week of January, and reconcile the filed totals back to the ledger afterwards.

This article is general information, not tax advice. Thresholds and deadlines change — confirm current requirements with your tax preparer or the IRS. See payroll administration for how we support this work.