1099 or W-9? What Changes When You Hire Your First Contractor

You paid a subcontractor to help finish a rush job, or brought on a virtual assistant for a few hours a week, or hired a second shooter for a wedding. The payment cleared from your business account, and you moved on to the next thing. Then tax season arrived, and you learned that payment came with paperwork you never planned for.

The rules just changed too. Starting with payments made in 2026, the IRS raised the threshold that triggers a Form 1099-NEC (the form that reports what you paid a contractor) from $600 to $2,000. That number gets the headlines. The real work is knowing whose job the paperwork is, and collecting the right form before the first payment goes out, not after.

1.Why One Payment Creates a Paper Trail

A 1099-NEC (Nonemployee Compensation, the IRS label for what you pay someone who is not your employee) reports money you paid a person or an unincorporated business for services. Pay one contractor $2,000 or more across the year in cash, check, or direct deposit, and you're required to send them a copy and file one with the IRS. The threshold counts everything you paid that person all year, not per project. Three separate $800 invoices from the same designer add up to $2,400, past the line.

Payments through a credit card or a payment app like PayPal or Venmo work differently. The platform handling the payment reports those through its own 1099-K, so you don't file a 1099-NEC on top of it. Most payments to actual corporations, meaning an LLC that elected to be taxed as a C-corp or S-corp, fall outside the 1099-NEC rule entirely. Freelance attorneys and law firms are the one exception: they get reported no matter how they're structured.

Hiring your first contractor can feel like admitting you can't handle everything alone. Andrew Carnegie, who built one of the largest steel businesses in American history, saw it differently: "No man will make a great business who wants to do it all himself, or to get all the credit of doing it." A contractor is how a one-person business grows past what one person can bill in a week. The form that comes with it is a small cost for that growth.

2.Get the W-9 Before the First Payment

Before you pay a new contractor anything, ask them to fill out a Form W-9 (Request for Taxpayer Identification Number and Certification, the form that collects a contractor's legal name and tax ID). You need what's on it to file the 1099-NEC correctly in January. Wait until the year ends, and you're chasing someone who has already moved on to other clients, with no strong reason to answer your email fast.

• Legal name and business name. The name on their tax return, plus a "doing business as" name if they use one.
• Business type. Sole proprietor, single-member LLC, partnership, or corporation. This tells you whether the 1099-NEC rule even applies to them.
• Taxpayer Identification Number. A Social Security number for an individual, or an Employer Identification Number for a registered business.
• Signature and date. The contractor certifies the information is correct under penalty of perjury.

3.What Happens If They Never Send It Back

Some contractors ignore the request. Maybe they don't want to give out a Social Security number over email, which is fair, or maybe they just forgot. Either way, you still owe the IRS an answer. The rule is called backup withholding (IRC § 3406, the tax law that requires it), and it puts the job back on you.

Once a contractor fails to give you a valid Taxpayer Identification Number, you're required to withhold 24% of every payment you make to them from that point on and send it to the IRS yourself. Say you owe a subcontractor $5,000 for a project and they never return the W-9. You withhold $1,200, pay them $3,800, and remit the $1,200 to the IRS using Form 945 (the return for withheld taxes that are not wages). Skip the withholding, and the IRS can come after you, not them, for the amount you should have held back.

A W-9 costs a five-minute email. Skipping it can cost you 24% of every payment you send.

4.Filing It Without Missing a Deadline

Once you have the W-9 and the year closes, filing the 1099-NEC comes down to three separate questions.

The same deadline covers the contractor and the IRS

Most IRS forms give you one date to send a copy to the person and a later date to file with the agency. The 1099-NEC doesn't work that way. Both copies are due January 31, or the next business day if the 31st lands on a weekend. There's no automatic extension, unlike almost every other information return.

How you actually send it in

File electronically through the IRS's free IRIS system (Information Returns Intake System, the IRS's online filing portal for 1099s), or mail a paper Copy A with Form 1096 (the summary sheet that lists what you're sending). Since 2024, filing 10 or more information returns of any kind in the same year requires e-filing. Most freelancers paying one or two contractors stay under that number and can still mail it in.

What your state wants separately

A handful of states run their own 1099 filing system with its own deadline, separate from the federal one. Check your state's department of revenue before you assume the federal filing covers you everywhere. A few states accept the federal filing through the IRS's Combined Federal/State program and need nothing extra from you.

5.Contractor or Employee? The IRS Test That Actually Matters

None of this paperwork matters if the person you're calling a contractor is legally an employee. Misclassifying someone costs far more than a missed form. Back payroll taxes and penalties can land on you once a state labor department or the IRS looks twice, and a worker can file an unemployment or overtime claim on top of that.

The IRS weighs three groups of facts, not one bright line:

• Behavioral control. Telling a contractor exactly how and when to do the work points toward employee. Handing over a finished result and letting them set their own process points toward contractor.
• Financial control. A contractor who sets their own rates and works for other clients looks the part. Someone who works only for you, on your schedule, with your equipment, looks like an employee with a different label.
• Relationship of the parties. A written contract for a defined project with an end date points toward contractor. Paid time off and an open-ended schedule with no end date point toward employee.

A single factor rarely decides it on its own. A contractor who sets their own hours but uses your equipment sits in a gray area worth asking a professional about before you build a business around the arrangement.

Getting the W-9 signed before the first invoice, tracking what you've paid each contractor across the year, and filing by January 31 turns this into a five-minute task done once, instead of a January scramble through old bank statements. Keep the signed W-9s and your copy of every 1099-NEC you file. They belong with the rest of your tax records, and how long to keep freelance tax records covers exactly how long to hang onto them.

Not sure how much you're actually spending on contract labor this year, or whether it's cutting into your margin more than you think? The free profit audit at simplance.org/profit-audit breaks down where your money goes in about a minute.

The $2,000 threshold buys freelancers a little breathing room on small one-off payments. It doesn't change what happens once you cross it.