W9 vs 1099 tax forms: what small business owners need to know

Published Thursday 11 September 2025

Table of contents

• What is a W9 form?
• What is a 1099 form?
• What's the difference between 1099 and W9?
• When to request a W9 and when to send a 1099
• Common filing mistakes to avoid
• How to stay compliant in 2025
• Make tax season easier with Xero
• FAQs on W9s vs 1099s

Key takeaways

• Use W-9s to collect tax information from independent contractors – keep the form for your records (don't send it to the IRS).
• Use a 1099-NEC to report contractor payments over $600 ($2000 as of 2026) – send one copy to the contractor and one to the IRS.
• Collect the W9 before making payments to the contractor – that ensures accuracy and helps you avoid liability for their taxes.
• Don't forget to file the 1099 on time to avoid penalties.
• Accounting software like Xero helps you track payments, store W9s, and file 1099s on time.

What is a W9 form?

A W9 is the form you use to collect tax ID numbers from independent contractors. You must provide the W9 tax form to all contractors you employ who are US citizens or persons (that is, lawful permanent residents, businesses, estates, or trusts). The form requests the contractor's name, type of entity (an individual or business, for example), tax ID number, and whether they're subject to withholding.

You collect the info on the W9 for 1099 purposes. Don't send the W9 to the IRS, just keep it for your records.

Note that the IRS requires a different form for foreign contractors.

What is a 1099 form?

So, what is a 1099 form used for? A 1099 form reports payments made by your business to independent contractors. Give a copy to the contractor and send one to the IRS.

You might also use a 1099 if your business makes payments to a law firm, an accountant, a consultant, or anyone else who's not an employee, unless they meet one of the exceptions.

TThe 1099 lets the IRS know the contractor (or anyone else) has received income from your business. It also helps back up the tax deduction you claim for paying that contractor. As of 2025, you must send a 1099-NEC to any contractor you paid more than $600 – but in 2026, the threshold increases to $2000.

You don't just need to send a 1099-NEC form to freelancers who work for your business. Instead, you should generate it for anyone paid by your business, such as a law firm, an accountant, or anyone else who's not an employee, unless:

• They're a corporation
• You pay with a credit card
• You pay through a payment processing service like PayPal or Venmo

For example, if you hire a virtual assistant on a freelance basis, you must collect a W9 and issue a 1099 if their payments exceed the threshold.

To file the 1099, you just need the info from the W9 plus the payment amounts you made to the contractor. Accounting software like Xero can e-file the form for you.

What's the difference between 1099 and W9?

Are a w9 and 1099 the same? No, but you use them for the same type of worker, so it can get confusing.

Purpose of the form

• W9: Used to collect tax information from contractors.
• 1099: Used to report payments made to contractors.

When to use it

• W9: Completed when hiring a contractor.
• 1099: Issued when reporting contractor payments.

What to do with it

• W9: Keep on file for your business records.
• 1099: Provide one copy to the contractor and one to the IRS.

When to request a W-9 and when to send a 1099

It’s important to know when to request a W9 or 1099.

Always request the W9 before making any payments. The W9 lets you know whether the contractor is subject to backup withholding taxes. If they are and you don't withhold the taxes, the IRS can hold you personally liable.

At the end of the year, add up all the payments you made. If they exceed $600 (or $2000 from 2026), give the contractor a 1099 and send one to the IRS. You must file the 1099 by January 31 or the next business day if that date falls on a weekend or holiday. You can mail in the forms unless you generate more than 10 1099s – in which case you’ll have to e-file them.

Common filing mistakes to avoid

Knowing the rules is just the first step. Protect yourself by doing a few important things right.

• Classify your workers correctly – Classifying someone as an independent contractor when they should be an employee can lead to fines, penalties, or even legal consequences. Here's a breakdown of the differences from the IRS.
• Understanding withholding requirements – Normally, you don't have to withhold taxes when paying contractors, but if they're subject to withholding, you can be held liable if you don't withhold the required tax and send it to the IRS.
• Fraudulent W9s – You're not responsible if someone provides a fake TIN or a fraudulent W9, but if you had reason to know it was fraudulent, the IRS can come after you.
• Missing deadlines – Failure to file 1099s on time can lead to penalties ranging from $60 for being a few days late to $660 for intentional disregard of the rules.

How to stay compliant in 2025

Follow these steps to stay compliant in 2025 and beyond.

• Collect the W9 before making payments – this ensures that the contractor has the right to receive payments without withholding any tax.
• Use a secure system for W9 storage – payroll apps and accounting software provide convenient cloud-based storage, so you don't have to worry about messy paper files.
• Track your contractor payments through the year – track all payments made so you can easily generate the correct 1099 forms at the end of the year.
• Automate your 1099 process – tools like Xero can speed up your 1099 process so you avoid errors and hit your deadlines.

Make tax season easier with Xero

Xero helps you stay on top of contractor forms and other accounting essentials. Use the software to collect W9s digitally from contractors, then track payments, issue 1099s, and even e-file these forms with the IRS.

Try Xero for free

FAQs on W9s vs 1099s

Here are answers to some of business owners' most common queries about 1099s and W-9s.

What if my contractor refuses to provide a W-9?

If a contractor refuses to provide their tax ID number (TIN) on a W-9, you must withhold 24% in backup withholding tax. And when you file the 1099, note that the contractor refused to provide a TIN.

How do I correct a mistake on a 1099 after filing?

If you make a mistake on a 1099, you must file a new form with the correct information. Send the new form by the same method you sent the original – e-file the corrected form if you originally e-filed, and mail in a paper copy if you filed by paper – and note "corrected" on the form.

Is there a way to manage these forms digitally?

Yes! There are all kinds of payroll apps and accounting software that let you send W9s to contractors, automatically generate and file 1099 forms, and store the forms for your records.

Here’s more on how Xero can help

When should I request a W-9 from a contractor?

Request the form before paying a contractor. That helps make sure you have the right TIN and that the contractor isn't subject to withholding tax.

Can I use the same W-9 form for multiple years?

Yes – once you have the contractor's information, you can use it for multiple years in a row. You don't need to collect a new W9 every year, but you might want to ask for updated contact info each year to be on the safe side.

What happens if I miss the 1099 filing deadline?

If you miss the 1099 filing deadline, you might need to pay penalties. The penalties for filing 1099s late are $60 up to 30 days late, $130 31 days late to August 1, $330 after August 1 or not filed, and $660 intentional disregard.