W-9s and 1099s: What Small Businesses Should Track Before Year-End
- Jeanette Delgado
- 8 hours ago
- 4 min read
Hiring independent contractors can make business easier.
You get help without adding a full-time employee. You can bring in specialized support. You can move faster when the business needs extra capacity.
But contractor payments also create a recordkeeping responsibility.
And the worst time to realize you are missing a W-9 is January.
The goal is simple: collect the right information before you pay, track contractor payments clearly during the year, and make year-end reporting less painful.
There is a helpful federal resource linked at the end that explains the forms and tax details. This article focuses on the bookkeeping side: what to organize before it becomes a scramble.
Key takeaways
Get a completed W-9 before paying a contractor.
Keep contractor records organized throughout the year, not just in January.
Track payments by vendor so 1099 review is easier.
Contractor payments should not be mixed with employee wages.
Missing or incorrect taxpayer information can create extra withholding and filing issues.
Quick links
Why W-9s matter before payment
Once you determine someone is an independent contractor, the first step is to request Form W-9. That form provides the contractor’s correct name and taxpayer identification number, which may be needed for future reporting. The IRS also notes that W-9s should be kept in your files for four years.
This is why “I’ll get it later” is risky.
Later usually means after the work is done, after the payment is made, and after the contractor is harder to reach.
A simple policy can prevent most of the headache: No W-9, no payment setup.
That does not need to feel harsh. It just makes the process clear.
What 1099-NEC reporting is really about
Form 1099-NEC is generally used to report nonemployee compensation paid to people who are not treated as employees, such as independent contractors, when payments meet the reporting rules. The IRS also reminds businesses not to use Form 1099-NEC for employee wages, which are reported on Form W-2.
From a bookkeeping standpoint, this means your records need to separate:
employees
independent contractors
vendors that may not require 1099 reporting
payments made through different methods
The form itself is a year-end task.
The cleanup usually happens because the tracking was not done during the year.
Where bookkeeping helps
Bookkeeping is what turns contractor payments into usable records.
If payments are tracked consistently, you can quickly answer:
Who did we pay?
How much did we pay them?
What were they paid for?
Do we have a W-9?
Are they set up correctly in the accounting system?
Were payments made by check, ACH, credit card, or another platform?
That last point matters because payment method can affect review and reporting.
If vendor payments are scattered across bank accounts, credit cards, apps, and manual checks, year-end review takes longer than it should.
Clean books make the 1099 process less reactive.
What to review before year-end
Do not wait until January to look at contractor records.
A simple quarterly review can catch the common issues early:
missing W-9s
vendor names that do not match tax records
contractors coded to the wrong expense category
payments split across multiple accounts
employee payments accidentally treated like contractor payments
vendors missing a 1099 tracking setting in the accounting system
This is not about doing tax work. It is about keeping the financial records clean enough that your CPA or tax preparer does not have to untangle the basics later.
A quick note on withholding
There are situations where withholding may apply to nonemployee compensation.
For example, backup withholding may be required when the payee has not provided a taxpayer identification number in the required manner, or when the IRS notifies the payer that the TIN is incorrect and the issue is not corrected.
The IRS lists the backup withholding rate as 24%.
You do not need to memorize every rule.
You do need a process that helps prevent missing or incorrect information from becoming a bigger issue.
Simple contractor recordkeeping checklist
Use this before year-end:
✅ | Request Form W-9 before the first payment. |
✅ | Save the W-9 in a consistent vendor folder. |
✅ | Confirm the vendor name matches the accounting system. |
✅ | Track payments by vendor throughout the year. |
✅ | Separate contractors from employees. |
✅ | Review contractor totals quarterly. |
✅ | Flag missing W-9s before January. |
✅ | Keep support for the type of work performed. |
Small habits during the year prevent big cleanup later.
FAQ
When should I collect a W-9 from a contractor?
Before payment setup. Waiting until year-end makes it harder to fix missing or incorrect information.
How long should I keep a contractor’s W-9?
The IRS says a W-9 should be kept in your files for four years for future reference.
What is Form 1099-NEC used for?
It is used to report certain payments made to nonemployees, such as independent contractors, for services performed for your trade or business.
Should contractor payments be tracked separately from payroll?
Yes. Contractor payments and employee wages are handled differently. Employee wages generally belong on Form W-2, not Form 1099-NEC.
Helpful resource
For the full form-specific details, review the federal resource here:
