W-9 vs. 1099 Differences for Independent Contractors [2024]

When taxes are in question, even the slightest mistake can cause problems and slow your business down. So, whether you’re an independent contractor or a small business owner who hires them, make sure you double-check the information on both the Form W-9 and Form 1099.

What are W-9 and 1099s tax forms?

W-9 and 1099 forms are used by businesses to collect and report information about contractors for tax purposes. The W-9 is filled out by independent contractors at the start of their contract to provide their tax details (name, address, and tax ID). Form 1099 is a broader category of forms that report various types of income other than wages. In this article, we’ll be addressing the form 1099-NEC, which is used to report non-employee compensation for independent contractors, such as freelancers or self-employed individuals, when payments exceed $600 in a given tax year.

What is Form W-9?

The Form W-9, or Request for Taxpayer Identification Number and Certification, is completed by the contractor when starting work with a business. It provides essential information such as the contractor’s name, business name (if applicable), address, and Taxpayer Identification Number (TIN). This form helps businesses accurately report contractor payments to the IRS, but it is only required once, unless the contractor’s information changes. W-9 is not for foreign contractors, who instead must complete a W-8BEN.

What is Form 1099-NEC?

The 1099-NEC (Nonemployee Compensation) is filed by businesses to report payments of over $600 made to contractors during the tax year. The form must be sent to both the IRS and the contractor by January 31st. The contractor uses this form to calculate their taxes, including self-employment and Medicare taxes. Contractors should keep these forms for at least two years, as they may be requested by the IRS during an audit. The 1099-NEC is required for most independent contractors, but not for those registered as C corporations or S corporations.

Note: If you're an employer and have US contractors working for you from outside of the US, we've got you covered. Deel handles 1099 filing for this group of contractors, too! So, if your US independent contractors are living abroad, reach out to Deel to learn more about how you can handle their 1099 tax forms effortlessly.

Other types of 1099 forms:

• 1099-DIV: This form is used to report dividend income and distributions
• 1099-C: This form is collected for the cancellation of debt in amounts of $600 or higher
• 1099-K: This form is collected for merchant cards and third-party network payments
• 1099-INT: This form is collected to report interest income in amounts of $10 or higher
• 1099-S: This form is collected to report proceeds from real estate transactions

Do you need Form W-9 or Form 1099-NEC?

In short - as a client, you will need both forms if you are working with independent contractors or non-employees. You won't even be able to fill out Form 1099-NEC without getting a Form W-9 from your independent contractor first.

Form W-9 vs Form 1099-NEC: Main differences

Here is a list of the main differences between Form W-9 and Form 1099-NEC:

Form W-9

• Filled out by the independent contractor
• Meant for clients to collect tax information from independent contractors (hence the name Request for Taxpayer Identification Number and Certification)
• Provides the clients with independent contractor's contact info and tax number
• Clients can provide a blank copy to the independent contractor and get a completed form in return
• Submitted only once, unless the contractor's information changes
• Needs to be completed before the independent contractor starts working for the client

Form 1099

• Filled out by the client
• Meant for clients to report how much they've paid the independent contractor within a tax year
• Client sends two filled out copies: one to the independent contractor and the other to the IRS
• Filed at the end of every tax season
• Needs to be sent every year, before January 31 for every independent contractor who has been paid more than $600 within a tax year.

How to fill out Form W-9

Filling out this form as a contractor should not be too demanding.

1. Write your full legal name on the first line.

2. The second line is meant for the name of your business. This may be your “doing business as” name or the name of your business. If you don’t have one, you can leave the second line blank.

3. Choose the box that most accurately describes your business entity type. In most cases, this will be the "individual or sole proprietor". If you have a limited liability company, don't forget to state the type - C corporation, S corporation, or Partnership.

4. Provide your address.

5. Fill out your Tax Identification Number - this can be either your Social Security Number (SSN) or your Employer Identification Number (EIN).

6. Put in your signature and date.

Apart from getting to know what the form looks like, the example of the IRS website has some useful information about backup withholding, penalties, and exemptions. Even though we can provide you with advice and tips on how to fill in the Form W-9, you should still read the instructions in the form before filling it out.

Things to look out for

As an independent contractor, you need to be careful when sharing your personal or business information. This means you should only fill out a Form W-9 you receive from legitimate clients that want to request your services. Do not fill out and submit a Form W-9 you received from unknown sources.

As a payer planning to hire a contractor, keep in mind that Form W-9 is used only for independent contractors that work in the United States. If you’re looking to hire foreign independent contractors, the process will look much different and the right tax form to collect is W-8BEN for individuals and W-8BEN-E for foreign entities.

How to fill in Form 1099

Form 1099 is the job of any business owner that has hired independent contractors to complete. This form shows the nonemployee compensation the payee received from the client over the fiscal year. Basically, it is used to report an independent contractor’s income. You can find a copy of Form 1099-NEC on the IRS site. Make sure you use the information your contractor provided in Form W-9 to fill out Form 1099. This information should contain:

• The full legal name of the payee (or business name if applicable)
• Business entity type (sole proprietorship, LLC, partnership, C-corporation, S-Corporation, etc.)
• A valid address
• Tax ID number - SSN, ITIN, EIN

An independent contractor receives this form (1099-NEC) instead of the From W-2 form when the payer doesn't consider you an employee, and therefore doesn’t withhold any of the usual payroll taxes. An exception to this is Box 4 on the 1099-NEC form. Namely, if you do not provide a TIN to the payer, they must backup withhold on certain payments. As an independent contractor, you can include this amount in your tax return as taxes withheld.

As the payer, if you do not backup withhold federal tax when required, you (or the business) can be liable for the tax amount you were required to withhold from the payee, regardless of whether they actually withheld it.

And here's a piece of advice. Learning (in a timely manner) what tax deductions you can receive as a 1099 worker can pay off greatly. Independent contractors are allowed to write off numerous items as business expenses and get to save a larger portion of their hard-earned money.

Submitting the Form 1099

From 1099 comes in two copies, both of which should be filled out by the payer and submitted to two different entities.

Copy A:

• Submitted to the IRS
• Can be submitted physically or electronically
• Filing a physical copy requires form 1096 as a cover sheet
• Filing an electronic copy can be done through the IRS FIRE System
• Before filing an electronic copy, you will need the TCC (Transmitter Control Code), for which you should apply at least 30 days before 1099 is due

Copy B:

• Sent to the contractor
• Can be done physically or electronically
• Before sending Copy B electronically to the contractor the payer will need their consent
• Consent should be acquired through the same means you plan to send the copy

Consent should also follow the general rules of IRS and should include (among other things): the scope and duration of the consent, instructions on how to withdraw consent, the date on which the form will no longer be available.

Additionally, in some cases, the state will require you to submit an additional copy to them, while in some states the IRS will do that for you only if the forms have been submitted electronically.

Form 1099 deadline and penalties for tax reporting in 2024

Unlike Form W-9, which must be submitted before the contractor starts working, Form 1099-NEC must be submitted annually by January 31, 2024. If this date falls on a weekend or holiday, the deadline will be the next business day.

Failure to submit the 1099-NEC on time can result in the following penalties:

• $60 per form if filed within 30 days of the due date.
• $120 per form if filed more than 30 days late but by August 1.
• $310 per form if filed after August 1, with a maximum penalty of $1,294,500 for small businesses.

Ensure you submit both the IRS and contractor copies by the due date to avoid these fines, which can accumulate and significantly impact your business.

Form 1099-NEC vs. 1099-MISC

As we’ve mentioned before, From 1099-NEC is used to report income for hired independent contractors that billed you over $600 for a tax year. For this, make sure to use the 1099-NEC (Nonemployment Compensation) form.

Not all income is equal though, and different types of income are susceptible to different types of taxation. Form 1099-MISC is submitted when reporting payments such as:

• Rents
• Medical and health care payments
• Prizes or awards
• Crop insurance proceeds
• Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
• Payments to your attorney, or legal settlements
• Fishing boat proceeds

In addition, you should use Form 1099-MISC to report any direct sales of at least $5,000 of consumer products for resale anywhere other than a full-time permanent retail institution.

Using Deel to file 1099 forms

With Deel, you can generate and file your 1099 forms in seconds. Deel's tax feature lets our US users collect W-9s, generate tax forms, and file 1099 forms to the IRS directly from Deel. Book a product tour with a specialist to get started.