W-9 vs 1099: What's the Difference?

The one-sentence difference

A Form W-9 is what you collect from a contractor at the start of the relationship — it captures their legal name, business name (if any), tax classification, address, and Taxpayer Identification Number (TIN, which is either a Social Security Number or an Employer Identification Number). A Form 1099-NEC is what you file with the IRS and send to the contractor after the tax year ends, reporting how much you paid them. The W-9 is the input. The 1099 is the output. You cannot accurately produce the 1099 without the W-9.

This is the single most important thing to internalize: W-9 happens at hire, 1099 happens after year-end. If you treat the W-9 as a January problem, you will spend January chasing dead phone numbers.

When you need each form

You need a W-9 from every contractor or vendor you might pay for services in the course of business — collected before the first payment goes out. There is no dollar threshold on collecting a W-9. You collect it because you might cross the reporting threshold later, and once you do, you'll need the contractor's TIN to issue the 1099. Asking for it at hire is normal and expected; asking for it in January after the relationship has cooled is awkward and often unsuccessful.

You need to file a 1099-NEC for every contractor (sole proprietor, single-member LLC, partnership, or LLC taxed as a partnership) you paid $2,000 or more in tax year 2026 or later for services rendered in the course of your trade or business. For tax year 2025 and earlier, the threshold is $600. The change comes from the One Big Beautiful Bill Act (OBBBA, Pub. L. 119-21).

You generally do NOT issue a 1099 to: corporations (with limited exceptions like attorneys' fees and medical payments), employees on W-2 payroll (they get a W-2 instead), or payments for goods (only services trigger 1099-NEC). You also don't issue a 1099 for payments made via credit card or third-party payment networks — those are reported by the processor on Form 1099-K instead.

The 2026 threshold change in plain English

For decades, the federal 1099-NEC reporting threshold was $600. If you paid any single non-corporate contractor $600 or more in a calendar year for services, you owed them a 1099-NEC. That number stuck for so long that most owners and even some bookkeepers still operate by it.

Starting January 1, 2026, the One Big Beautiful Bill Act raises the federal threshold to $2,000. The W-9 collection rule does not change — you should still collect a W-9 from every contractor at hire — but fewer one-off payments will trigger a 1099 obligation.

Important caveat: several states maintain lower state-level 1099 thresholds that the federal change does not override. California, Massachusetts, Oregon, Pennsylvania, Rhode Island, Vermont, and New Jersey are the main ones to watch. If your contractor lives in or performed work in one of those states, the federal $2,000 threshold may not be your only obligation.

The IRS penalty schedule for missed or late 1099s

Per Rev. Proc. 2024-40 §3.57, the penalty schedule for tax year 2026 1099-NEC forms is: $60 per form filed within 30 days of the deadline (deadline is January 31, 2027), $130 per form filed by August 1, 2027, $340 per form filed after August 1 or not at all, and $680 per form for intentional disregard. The intentional-disregard penalty has no annual cap.

Missing multiple 1099s compounds quickly under the intentional-disregard tier, and dual-threshold states stack separate penalties on top. Use the penalty calculator to model your exposure by contractor count and lateness.

A practical checklist for owner-operators

Before paying any new contractor for the first time: send them a W-9 link, store the completed form, and confirm the TIN matches the legal name on file. Do not advance the first payment until the W-9 is back. This is the single most effective control you can run.

Throughout the year: track cumulative payments per contractor against the threshold for the relevant tax year ($2,000 for 2026+, $600 for 2025 and earlier). Watch for anyone who reaches 75 percent of the threshold — that's the amber zone where you should make sure the W-9 is still valid (no name change, no entity change).

By January 31 of the following year: issue 1099-NEC forms to every contractor who crossed the threshold AND file copies with the IRS. Most owners e-file through a third-party 1099 e-file service or directly through the IRS Information Returns Intake System (IRIS).

In dual-threshold states: separately check whether you owe a state 1099 for any contractor who fell below the federal threshold but exceeded the state one. Use a state checker before assuming federal-only.

Keep a copy of every W-9 for at least four years. The IRS can ask for them during an audit and "I never collected one" is not a defense.

Common confusions, cleared up

"Is a W-9 the same as a 1099?" No. They are two different forms with two different purposes, used at two different times. The W-9 is a private form between you and the contractor; it is never sent to the IRS. The 1099 is filed with the IRS and sent to the contractor.

"My contractor is an LLC — do they get a 1099?" Usually yes. Single-member LLCs and LLCs taxed as partnerships are treated as 1099-eligible. LLCs that have elected S-corp or C-corp tax treatment are usually NOT 1099-eligible (with the medical/legal exceptions). The W-9 is exactly how you find this out — Box 3 of the W-9 reports the contractor's tax classification.

"What if my contractor refuses to provide a W-9?" The IRS rule is that you must begin backup withholding at 24 percent of each payment until you receive a valid W-9. In practice, most owner-operators simply stop using contractors who refuse — a refusal is usually a signal that something is off.

"I paid via PayPal/Stripe/Venmo — do I still need to file a 1099-NEC?" No. Payments processed through a third-party network are reported by the processor on Form 1099-K, not by you on a 1099-NEC. This is the only major exception to the rule that you file a 1099 for crossed-threshold contractors.

How EarnDrift handles both ends of this

EarnDrift collects the W-9 at the moment you add a contractor — a secure link is sent to them, the completed form is stored encrypted, and the W-9 status is visible per contractor on your roster. As payments accumulate through the year, EarnDrift tracks each contractor's YTD total against the year-aware threshold ($2,000 for 2026+, $600 for 2025) and color-codes them: green below 75 percent, amber from 75–99 percent, red at or above 100 percent.

In January, EarnDrift generates draft 1099-NEC worksheets for every contractor who crossed the threshold, plus an e-file-ready CSV for upload to your 1099 e-file service of choice. Worksheets are clearly labeled DRAFT and marked Estimates only — final filing accuracy is your responsibility, but the prep work is done.

This is not a substitute for a CPA. It is a tool to make sure you arrive at the CPA conversation with clean data instead of a shoebox of receipts.

Disclaimer

EarnDrift is not a tax preparer, CPA, or law firm. The information on this page is for general guidance only and reflects federal rules under the One Big Beautiful Bill Act (Pub. L. 119-21) and IRS Rev. Proc. 2024-40 §3.57 as of the page's last update. State rules vary and change. Always confirm specifics with a qualified tax professional, especially if you operate in a state with its own 1099 reporting requirements.