Before the first invoice
Collect a Form W-9 with the contractor's legal name, tax ID, and address. Put the engagement in writing: the scope, fees, payment terms, who owns the work, and confidentiality. Confirm the working relationship fits that of a contractor, since the label alone does not decide it. If the contractor needs insurance or licenses, get proof.
Set them up as a vendor
Create the contractor in your accounting system with the details from the W-9, and mark them for 1099 tracking. Verify bank details by a call you place yourself. Decide who approves their invoices, and the expense account their cost goes to.
During the engagement
Match invoices to the agreement before you pay. Keep a running total of payments for the year, because the reporting threshold is based on what you pay in the calendar year. Contractors working abroad raise other questions, such as foreign payee forms, so ask a tax professional.
Offboarding
When the work ends, pay the final invoice, confirm that the deliverables and any company property are returned, and close their access to systems and accounts. Keep the W-9, the agreement, the invoices, and proof of payment. Note the final payment date.
Year-end reporting
At year end, compile a list of everyone you paid for services during the year, with totals and tax IDs. Check the current reporting threshold and the form to use, since both can change. Send forms to contractors and to the IRS by the deadlines. Payments by credit card or payment platform are generally reported by the processor, not by you, so exclude them from your own forms if that is the rule that applies.
A year-end worksheet
A simple list, built from the vendor records, answers most year-end questions. Fill it in once from the ledger, then hand it to the preparer.
| Vendor | What you paid for | How you paid | What it means |
|---|---|---|---|
| Freelance designer, sole proprietor | Design fees | ACH | Reportable on a 1099-NEC if the total clears the threshold |
| Individual landlord | Office rent | Check | Reportable on a 1099-MISC if the total clears the threshold |
| Software company | Subscription | Credit card | Nothing from you; the card processor reports it |
| Law firm, incorporated | Legal fees | ACH | Payments to attorneys are often reportable even when the firm is a corporation |
| Cleaning company, taxed as a corporation | Services | Check | Usually no form; confirm from the W-9 |
Frequently asked questions
What if a contractor will not give me a W-9?
Ask in writing. Without a taxpayer ID, backup withholding may be required. A professional can advise.
Do I issue a 1099 for a corporation?
Often not, with exceptions such as legal fees. Check the IRS instructions.
When must I send 1099-NEC forms?
Generally by January 31 for the prior year. Check the current deadline in the IRS instructions.