Did you pay an independent contractor more than $600 this tax year? If so, you may be legally required to file a Form 1099-MISC—and it’s critical that you get their Social Security Number or Federal Tax ID before tax season rolls around.
No ID number? No tax deduction.
No 1099? Hello, IRS audit.
And trust us, the IRS isn’t something you want to tangle with. The last thing you need is an audit that opens up every dusty file drawer in your business.
Why the W-9 Is Your Best Friend
Before paying any contractor over $600, get a completed W-9 form. This form gives you the essential info you’ll need—like their legal name, business name (if any), and tax ID number—to prepare the 1099.
⚠️ Warning: If a contractor refuses to give you their W-9 details, you are legally required to begin backup withholding—deducting a percentage from their pay to send to the IRS as a tax deposit. That’s a paperwork nightmare you don’t want.
Also, don’t let contractors claim they’re “exempt” unless they can prove it. Most are not. Even if they are, it’s not your job to decide—you still need a W-9.
And stop paying cash without documentation. That train has left the station. The newly modernized IRS is fully equipped and ready to audit.
A w-9 form is online
The process is simple, go to the IRS site here and complete a W-9 form online. Enter the name and other information for the contractor. Save the form and email it to the contractor to fill in their social security number or business federal tax ID. When this is done, they send it back to you. It’s probably best to hand it to the contractor in person and have them sign and give it back to you.
Hold the w-9 form and use it to create your 1099-misc or 1099-NEC form which you will provide to the independent contractor by the deadline, usually January 31 (with COVID and other issues there have been different dates so check).
If you send the 1099-misc form or 1099-NEC form to the Internal Revenue Service without a taxpayer identification number, you will eventually be notified to acquire it. Should obtain incorrect information or fail to obtain the tax ID number, you will be denied the tax deduction for those payments.
Two forms are available
Two forms are used to report funds over $600 per year paid to an entity. The 1099-NEC (non-employee compensation) is used for payment to individuals who report as self-employed. An example is a gardener who cuts the lawn at your business but is an individual not working for a company.
This person is responsible to pay their federal income tax as a self-employed person. Use form 1099-Misc when you are paying a business or for rent. Property managers who pay property owners rents collected on their properties would receive a 1099-Misc. The due date for both forms is the same, January 31.
The whole concept of non-employment income comes under strong scrutiny by the Internal Revenue Service. Should you pay what you believe to be an independent contractor to perform work (called gig workers) they may be considered employees by the IRS. Should the IRS consider your “contractor” as an employee, you will be subject to a levy for employers’ Social Security, and Medicare taxes, and your state will require you to pay any state employment taxes. There is a fine line between self-employed individuals and employees.
As with any issue dealing with the Internal Revenue Service or state tax agency, you should seek help from at minimum the IRS website. Soliciting legal advice or working with a CPA may help you determine if the person in question is an employee or a true independent contractor.
Special Note for Rental Property Managers
If you manage rental properties and forward income to property owners, you are responsible for issuing 1099-MISC forms to those owners. Many first-time clients aren’t expecting this—so it’s a good idea to send an email in early January informing them the form is coming before the January 31 deadline.
Some people try to file their taxes early and may miss reporting income if they don’t have the 1099 from you. Also, if your property owners have been renting under their own names and not reporting the income, this may catch them off guard.
💡 Pro Tip: Recommend that property owners form a business entity (like an LLC) to hold the rental property. Then you can issue the 1099-MISC to the company using its Federal Tax ID.
Consult Your CPA on This
Some property managers report:
- Total rents collected on Line 1 of the 1099-MISC
- Others report net payments after management fees
Both practices exist, but check with your CPA to determine which is correct for your setup.
Checklist: Best Practices for Working with Contractors
Here’s a list to help you stay compliant and avoid getting flagged as an “employer”:
✅ Get a W-9 before payment
✅ Make sure the business name and tax ID are legit
✅ Ask for a copy of their Social Security card if using an SSN
✅ Always use a contract with a clear end date
✅ Encourage them to get an EIN and form an LLC
✅ Ask them to list other clients or income sources in writing
✅ Ensure the income you provide is not more than 50% of their total
✅ Have them sign a statement confirming the above and promising to update you if their status changes
Final Thoughts
If you’re paying gig workers, contractors, or vendors—get your ducks in a row before the end of the year. A little effort now will save you a lot of stress later.
And remember, while this article gives you a roadmap, it’s always best to check with your CPA or tax advisor. Every business is different, and the IRS doesn’t cut breaks for ignorance.company which is a great help. The assumption is that they are paying their taxes since they gave you their business tax ID.
Independent Contractor vs. Employee: What’s the Real Difference?
To the IRS and other government agencies, the main factor distinguishing an independent contractor from an employee is exclusivity. If the person only works for you, there’s a strong presumption that they may be considered your employee—especially if they don’t have their own registered business.
It’s always better from a compliance standpoint if your contractor is also doing work for others or has established their own company with a Federal Tax ID.
IRS Penalties Are No Joke—File Form 1099 By January 31
Each year, Form 1099-MISC or 1099-NEC must be issued to every independent contractor you paid more than $600. Failing to file these forms by January 31 could result in serious IRS penalties.
Be sure to collect W-9 forms from anyone you paid by cash, check, debit card, or credit card as soon as the total reaches $600. Don’t delay—if you don’t have a W-9 yet, get one now.
Why That Tax ID Number Is Critical
The Employer Identification Number (EIN) or Social Security Number on the W-9 is the foundation of your compliance. Without it, you can’t issue a valid 1099 form.
If you’re paying someone in cash, especially on a one-time basis, make sure the W-9 is completed before you make payment. Cash creates a weak paper trail, which can come back to bite you during an audit.
Forget “Under-the-Table” Payments—They’re History
The days of paying contractors “under the table” and forgetting about it at tax time are long gone. You must have a paper or electronic trail for every transaction.
Using checks or secure online payments (e.g., PayPal, Zelle with business accounts) creates a record for both your business and the IRS.
Important: If you don’t report non-employee compensation and your contractor does, the IRS will eventually match the reports—and come knocking.
Why Transparency Matters (Even Beyond Taxes)
Sometimes, income must be reported for other legal reasons—like child support obligations or income verification for benefits. Don’t put yourself at risk by ignoring reporting rules.
The current administration has funded the hiring of 80,000+ IRS agents, many of whom will focus on self-employment income. Their job is to trace income across individuals, businesses, and bank accounts. Don’t assume anything is invisible.
Every Business—Even Sole Proprietors—Must File 1099s
Whether you’re a sole proprietor or run a full-fledged company, you’re legally responsible for issuing 1099s for payments over $600.
This requirement applies to individuals and businesses alike. While the IRS might not chase you down for paying a teenager $650 to mow lawns, that’s the exception, not the rule.
And if you’ve hired undocumented workers with no Tax ID, you cannot deduct those payments—they’re considered non-reportable, and your CPA will have to classify the expense differently (if at all).
Pro Tip: Always Collect the W-9 First
The easiest way to stay in compliance is to make it a habit to collect a completed W-9 form before any work begins. You can print them directly from the IRS website.
Keep a few blank copies on hand and don’t forget the other supporting information we discussed in our previous article (e.g., other income sources, proof of business entity, SSN card if no EIN, etc.).
How to File Your 1099s
Once you’ve gathered your W-9s and year-end payment records, you’re ready to file:
- Use the information to complete either Form 1099-NEC (for services) or Form 1099-MISC (for rent, royalties, etc.).
- Include the Transmittal Form 1096 if you’re filing by paper.
- The form packet includes:
- A copy for the IRS
- A copy for the state (if required)
- A copy for the recipient
- A copy for your records
📬 Mail Deadline: January 31
🌐 E-file Option: Use the IRS FIRE system at irs.gov/FIRE
You can order official 1099 forms for free from the IRS after December 10, or purchase them from retailers like Office Depot or Amazon.
🗓️ Best practice: Order your forms before year-end to avoid any last-minute stress.
Final Thoughts
Whether you’re managing a business, hiring contractors occasionally, or just paying someone to build a fence—the IRS wants to know about it. If you keep your records in order, collect W-9s upfront, and file on time, you’ll be well ahead of the game.
When in doubt, talk to your CPA. A little planning now will save you a whole lot of headaches later.
The following is from the IRS website regarding FIRE:
“Any entity that needs to file information returns can file electronically via the FIRE System. Any corporation, partnership, employer, estate, or trust that files 250 or more information returns for any calendar year must file electronically. We encourage filers who have less than 250 information returns to file electronically as well.
Warning: Many websites pretend to be the Internal Revenue Site and they come up first on searches of any keywords such as 1099. They will offer you services that are free from the IRS. Some accounting programs claim they can electronically submit your 1099’s to report payments that include Quickbooks.
Please read other articles on our blog page and browse our website. Listen to our podcasts. Try this article on locating the best property manager for your rental. This article explores Handymen not paying taxes on their income
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