Hiring US Contractors: 1099-NEC Rules for Business Owners

Written by CA Sumit ChandwaniChartered Accountant & Founder · Reviewed by Minal Bihani, EA

If your business pays US contractors, three obligations follow you all year.

1. Collect a W-9 before you pay

Get a signed W-9 from every US contractor before the first payment. It gives you their legal name and TIN — the two things you need at filing time. Chasing W-9s in January from contractors who've moved on is how deadlines get missed.

2. Issue 1099-NEC on time

You report nonemployee compensation on Form 1099-NEC once payments to a contractor cross the reporting threshold for the year (historically $600; recent legislation raises it for payments made after 2025 — check the current figure when you file). The form goes to the contractor and the IRS by January 31.

• Payments to corporations are generally exempt (attorneys excepted)
• Payments made by credit card or through platforms like PayPal business are reported by the processor on 1099-K instead — don't double-report
• Foreign contractors working outside the US get a W-8BEN, not a 1099

3. Make sure they're actually contractors

The IRS looks at behavioral control, financial control and the relationship. Set their hours, provide the tools, make them exclusive — and you may have an employee, with back payroll taxes and penalties to match. When in doubt, run the facts past a professional before the relationship hardens.

The bottom line

W-9 up front, 1099-NEC by January 31, and honest classification. MOREOFTAX handles contractor reporting, payroll setup and classification reviews as part of bookkeeping and tax plans.