Stop Chasing W-9s in January: Pay All Your Contractors From One Place
TL;DR: When you work with contractors, you owe them a filing called a 1099 at the end of January each year. In order to properly fill these out, you need two things: the contractor’s W-9, and a clean record of how much you paid them in the prior calendar year.
Contractor Payment Without a Centralized Payment System
Typically, start-ups will start with payment systems that they are the most familiar with. This might mean adhoc wires from their Mercury account, credit card payments, or even PayPal. The challenge is that if payments are scattered across multiple systems of record, at year end, you’ll be going on a scavenger hunt to tally up the contractor’s total payments. Although this approach may work for companies with one or two contractors, as a business scales, payment records and tax documents become unorganized and the process becomes unsustainable.
Better Contractor Onboarding: Collect W-9s Upfront?
A W-9 is a form businesses use to prepare year-end tax documents, like 1099s, for contractors and freelancers. The W-9 form provides essential information to file 1099s to the IRS such as legal name, address, and tax identification number. You need to file a 1099 for any contractors that received >$600 from you in a year.1
For every contractor, companies should collect W-9s upfront, when initially onboarding them to the business. By doing so, companies ease compliance risks and avoid scrambling to hunt down documents needed to file forms to the IRS at year-end.
The Full Solution
You’ll want to make sure you’re doing the below to make 1099 filing a breeze:
Pick one place you’ll pay contractors from, and stick to it
Collect W-9 information from contractors when you onboard them to your payment platform
File 1099s from the payment platform at the end of January each year
You don’t need to cobble together systems to collect W-9s, pay contractors, or file 1099s at year end. In most cases, we recommend clients use one of two systems to manage the full process above:
If you’re using Ramp, which is our favorite expense management solution, they’ll do contractor onboarding and payments for free, but you’ll pay (a nominal amount, pull $) per 1099 filing.
If you’re using our favorite PEO, Justworks, they’ll do W-9 collection, contractor payment, and 1099 filing.
The Bottom Line
For many startups, having multiple contractors can be difficult to manage when payments are spread across different platforms and founders are manually collecting W-9s. Using a centralized payment system to streamline operations is essential for helping founders have peace of mind and focus on building their businesses.
Resources
https://www.1099online.com/blog/1099-late-filing-penalty/#:~:text=Table_title: 3. 2025 Penalty Amounts and When,Max per “Small Business”: No cap |
1 Sidenote: this is why a lot of contests and giveaways stay under this number
