W-9 vs. 1099: Key differences for small business owners

While your small business may have full-time employees on the payroll that help keep your business running, you may need to hire independent contractors to help with special projects. When the time comes, you’ll find yourself with different types of tax forms. 

Since independent contractors aren’t employees, you won’t issue them a W-2 form. Instead, you’ll have to provide a W-9 form and prepare a 1099 form for tax season. Dive into the differences between W-9 vs. 1099 forms, including deadlines, penalties, and how to use them together.

Jump to:

• What is a W-9?
• What is a 1099? 
• W-9 vs 1099: Key differences 
• When and how to use W-9 and 1099 forms 
• How to complete a W-9 form 
• How to complete a 1099 form
• Tips for tax season
• Find peace of mind come tax time 
• W-9 vs. 1099 FAQ

What is a W-9?

The W-9 form collects the tax information of independent contractors, freelancers, and other individuals or entities your business pays for services. It helps your business gather the necessary information to report payments to the IRS.

If the independent contractor will make over $600 in a year, they should fill out a W-9 form.

What is a 1099?

A 1099 is a tax form known as an information return, and there are different types. For filing independent contractor income, your business will use Form 1099-NEC. Independent contractors rely on this form to accurately file their tax returns and pay self-employment taxes.

Your business will fill out a 1099 form for each independent contractor, including freelancers and other entities, after the end of each tax year.

W-9 vs 1099: Key differences

While your business uses both the W-9 and 1099 forms for tax reporting, the main difference is their purpose. 

Independent contractors will use the W-9 form to fill out tax-related information to give to the business they provide services for. The 1099 form is a tax reporting form businesses use to report income paid to individuals or entities during the tax year. 

Here are some other differences between a W-9 and a 1099 form:

Information requested

Another difference between W-9s and 1099s is the information requested in the form. A W-9 form collects information from the recipient, such as their name, business name (if applicable), address, and TIN. 

A 1099 form reports the total payments made to the recipient, which will include the contractor’s information, your business’s TIN, name, and address, as well as the total nonemployee compensation. 

Deadlines

You’ll issue the W-9 and 1099 forms at different times. As a business owner, you typically request a completed W-9 tax form from the independent contractor before you make payments to them—ideally as soon as you hire them. This ensures you have the necessary tax information for reporting. However, there isn’t a deadline to submit the W-9 form, as you don’t have to file it to the IRS. 

Your business has to provide a 1099 form to the IRS and the independent contractor. The deadline to submit 1099-NEC forms to nonemployees is Jan 31, and the deadline to file with the IRS will vary depending on when taxes are due. You must file Copy A with the IRS and provide Copy B to the contractor so they can file their taxes. 

Penalties

Both forms also differ in terms of penalties. While the IRS doesn’t require you to file Form W-9, you must request contractors to submit the form. If a contractor doesn’t submit a W-9 form or provides incorrect information, they are subject to a $50 fine for every instance of non-compliance. If the payee provides incorrect information that leads to incorrect withholding, they may be subject to a $500 penalty. 

If your business fails to issue Form 1099-NEC by the deadline, the penalty can vary from $60 to $310 per form in 2024. The penalty will vary depending on how long you issued the form after the deadline. 

When and how to use W-9 and 1099 forms

If your small business recently hired or plans on hiring independent contractors, freelancers, or gig workers, you’ll need to use both W-9 and 1099 forms.

Using the W-9 form

As a business owner, you should request a W-9 form from any independent contractor, freelancer, or vendor you’re paying for services. Typically, you ask for it after hiring, but before making the first payment so you have their Taxpayer Identification Number (TIN) on file. This helps you report their earnings to the IRS using a 1099 form at the end of the year. 

Using the 1099 form

You must issue a 1099 form, typically a 1099-NEC, to any independent contractor or freelancer you've paid $600 or more for services during the year. 

You need to send this form both to the contractor and the IRS by January 31st of the following year. The 1099 form reports the total amount you paid your contractor for tax purposes. Collecting a W-9 form from them beforehand will ensure you have their correct tax information when it's time to file.

How to complete the W-9 form

The W-9 and 1099 forms include instructions from the IRS, but here’s a breakdown of the basics. Refer to the official IRS documents for the latest information, or consult a tax professional for any specific questions. 

While you, the business owner, provide the W-9 form, the contractor fills it out. Make sure you have the most recent version of the W-9 form, which is available for download on the IRS website. You’ll give this to the contractor or vendor who you will be paying.

Collecting this form upfront before your contractor starts working for you helps ensure you have all their accurate tax information to meet IRS reporting requirements. It will facilitate the process of completing the 1099 later on. 

Step 1: Contractor will enter their name

The contractor will enter their full legal name in Line 1. This should match the name they use on their tax returns.

Step 2: Business name (if applicable)

If the contractor is operating under a business name or DBA (Doing Business As), they will fill in Line 2 with that information. For most sole proprietors, this line can be left blank.

Step 3: Select the tax classification

The contractor will choose their tax classification by checking the appropriate box in Line 3:

• Individual/Sole Proprietor: For most freelancers or independent contractors.
• LLC or Corporation: If they are registered as an LLC, they’ll check the box and specify the LLC classification (C, S, or P).
• Other options may apply depending on the contractor’s business structure.

Step 4: Exemptions (if applicable)

For Line 4, most independent contractors will leave this blank. This section is for those who may be exempt from backup withholding or are a certain type of entity (like government organizations).

Step 5: Enter address information

The contractor will enter their mailing address in Line 5 (street address), Line 6 (city, state, and ZIP code), and Line 7 if they use an account number for referencing payments.

Step 6: Provide the Taxpayer Identification Number (TIN)

On Part I, the contractor must enter their Taxpayer Identification Number (TIN). This will be their Social Security Number (SSN) if they’re an individual or sole proprietor or their Employer Identification Number (EIN) if they operate as an LLC or corporation.

Step 7: Sign and date

In Part II, the contractor will sign and date the form to certify that the information they’ve provided is accurate. This step confirms their tax information.

Step 8: Contractor submits the form

The contractor will give the completed W-9 form back to you. This form should be kept on file for your records, as you’ll need the information for issuing a 1099 form at tax time.

How to complete the 1099 form

The 1099 form is filled out by you, as the business owner. The information included in the contractor’s W-9 will help you complete this form. 

Step 1: Obtain the Correct 1099 Form

Ensure you have the correct version of the 1099 form. For most contractor payments, you'll need the 1099-NEC (Nonemployee Compensation). You can get these forms from the IRS or an office supply store. Tax software programs like QuickBooks may have pre-printed 1099-NEC forms. 

Step 2: Gather Contractor Information

Use the W-9 form provided by the contractor to collect their full legal name, address, and Taxpayer Identification Number (TIN) (usually their Social Security Number or Employer Identification Number).

Step 3: Fill in Your Business Information

In the top section, where it asks for “Payer” information, you'll enter your business's name, address, and Employer Identification Number (EIN) or Social Security Number if applicable.

Step 4: Enter the Contractor's Information

Using the details from the W-9, input the contractor's full legal name, address, and TIN in the relevant boxes.

Step 5: Report the Payment Amount

In Box 1 (Nonemployee Compensation), enter the total amount you paid the contractor for their services during the tax year. Make sure this is the total paid if it's over $600.

Step 6: Federal Income Tax Withheld (if applicable)

If you withheld any federal income tax from the contractor’s payment, enter that amount in Box 4. If you didn’t withhold any tax, leave it blank. Contractors are typically responsible for their own tax payments, so in most cases, this would be left blank.

Step 7: Fill in Other Applicable Boxes

Fill out any other applicable boxes if necessary (depending on the type of payment). However, for most contractors, Box 1 and Box 4 are the most relevant fields.

Step 8: Complete the Copy Information

• The 1099 form consists of several copies:
• Copy A: Send this to the IRS.
• Copy B: Send this to the contractor.
• Copy 1: If your state requires it, send this to your state tax agency.
• Copy 2: Give this to the contractor if they need it for state tax filing.
• Copy C: Keep this for your own records.

Step 9: Send the Forms

Mail Copy A to the IRS by January 31st of the following year. You can also file electronically through the IRS’s online system if you have multiple forms. QuickBooks also offers assistance with 1099 e-filing. 

Mail Copy B to the contractor by January 31st as well.

Step 10: File Form 1096 (If Filing by Mail)

If you’re submitting 1099 forms by mail to the IRS, you’ll also need to submit a Form 1096, which summarizes the 1099s you're submitting. Fill out this form and mail it with the 1099s to the IRS.

W-9 and 1099 tips for tax time

Stay prepared for tax season by following these tips for using W-9 and 1099 forms together: 

Request a W-9 before payment

Make it part of your onboarding paperwork to have nonemployees fill out a W-9 form to collect necessary tax information. 

Verify TIN accuracy

Ensure the TIN provided on the W-9 form matches the recipient’s legal name. You can verify this information with TIN matching to prevent issues with the IRS. 

Use the information for 1099 reporting

When filling out each 1099, use the information collected on the W-9 and report the total payments made to the recipient. 

Meet deadlines

Adhere to IRS deadlines by providing a copy of the 1099 form to the recipient by Jan 31 and submitting copies to the IRS by the appropriate deadline. 

Keep records

Maintain organized records of both the W-9 and 1099 forms for at least four years. You may need them for IRS tax audits, payment verification, and addressing any discrepancies. 

Handle backup withholdings

Fill out backup withholdings if the payee indicates on the W-9 that they are subject to them. If the payee doesn’t provide a TIN—or provided the wrong one—you’re responsible for backup withholdings on their behalf at 24%. 

Communicate clearly

Maintain open communication with independent contractors to ensure they understand the process and know what to expect, especially if it’s their first time receiving a 1099 form. 

Consider using payroll software for small businesses, such as QuickBooks Payroll, to help streamline the process of collecting W-9 forms, generating 1099 forms, and maintaining records. 

By following these tips for managing Forms W-9 and 1099, small business owners can minimize the risk of tax-related issues when working with independent contractors, freelancers, and gig workers.

Find peace of mind come tax time

When hiring your first independent contractor, knowing the difference between W-9 vs. 1099 forms can bring you peace of mind during tax season. Using these forms correctly ensures compliance with IRS regulations and establishes transparency and accountability with contractors. 

You can simplify the process of managing contractor payments with accounting software, like QuickBooks, which lets you pay contractors fast while completing your 1099s so you can e-file to the IRS.

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