1099s, W‑2s, and Contractors: What You Must File Before the Deadline

Your practical, no‑panic guide to staying compliant this tax season.

Tax season has a way of turning even the most organized founder into someone who suddenly questions everything:
Did I classify that person correctly?
Do I owe them a 1099 or a W‑2?
What’s the actual deadline?
And what happens if I get it wrong?

If that sounds familiar, you’re not alone. Worker classification and year‑end filings are some of the most confusing parts of running a business — and the IRS knows it. That’s why penalties for late or incorrect filings have increased over the years, and why staying ahead of the deadlines matters more than ever.

The good news? Once you understand who gets what form and how to prepare, the process becomes surprisingly manageable. This guide breaks down everything you need to know so you can file confidently, avoid penalties, and keep tax season calm.

Why These Forms Matter

W‑2s and 1099s aren’t just administrative tasks — they’re how the IRS tracks income paid to workers. If you paid someone, the IRS wants to know whether they were an employee or a contractor, and how much they earned.

The distinction matters because:

• Employees have taxes withheld.

• Contractors do not.

• Misclassification can trigger audits, back taxes, and penalties.

• Missing forms can lead to fines ranging from $60 to $630 per form.

In other words: this is worth getting right.

W‑2s: For Employees Only

If someone is on payroll, they get a W‑2. No exceptions.

You must issue a W‑2 if the worker:

• Receives a salary or hourly wage

• Has taxes withheld from their paycheck

• Uses your tools, follows your schedule, or works under your direction

• Is integrated into your business operations

Deadline:

January 31 — to both the employee and the Social Security Administration.

Why it matters:

Employees rely on W‑2s to file their taxes. Missing or late W‑2s can create frustration for them and penalties for you.

1099‑NECs: For Contractors and Freelancers

If you paid a contractor $600 or more for services during the year, you likely owe them a 1099‑NEC.

This applies to:

• Freelancers

• Consultants

• Designers, developers, marketers

• Bookkeepers, copywriters, photographers

• Anyone who provided a service and was not on payroll

You must issue a 1099‑NEC if:

• You paid them $600+

• They are not a corporation (with some exceptions)

• You paid them via cash, check, ACH, or bank transfer

You do not issue a 1099‑NEC if:

• You paid them via credit card, PayPal, Stripe, or another third‑party processor
  (Those companies issue a 1099‑K instead.)

• They are an S‑Corp or C‑Corp

• They are a registered nonprofit

Deadline:

January 31 — to the contractor and the IRS.

1099‑MISC: For Rent, Royalties, and Other Payments

The 1099‑MISC is used for non‑service payments, including:

• Rent

• Royalties

• Legal settlements

• Prizes or awards

• Certain healthcare payments

Deadlines:

• January 31 to recipients

• February 28 (paper) or March 31 (electronic) to the IRS

The Most Common Mistakes (and How to Avoid Them)

Even well‑run businesses slip up during tax season. Here are the mistakes I see most often — and how to prevent them.

1. Not collecting W‑9s upfront

This is the #1 cause of January chaos.

If you don’t have a contractor’s W‑9, you can’t issue a 1099.
And chasing people down in January is… not fun.

Fix:
Make W‑9 collection part of your onboarding process.
No W‑9 = no payment.

2. Misclassifying workers

If you control how, when, and where someone works, they’re likely an employee — not a contractor.

Misclassification can lead to:

• Back taxes

• Penalties

• Interest

• Potential audits

When in doubt, classify conservatively or ask a professional.

3. Forgetting about non‑payroll payments

If you paid someone via:

• Venmo

• Zelle

• Cash

• Check

• ACH

…it counts toward 1099 reporting.

If you paid via credit card or PayPal, it doesn’t.

4. Missing the January 31 deadline

The IRS does not play around with this one.
Late filings = automatic penalties.

5. Not reconciling contractor payments with your books

Your 1099s must match your accounting records.
If they don’t, the IRS notices.

How to Prepare Your Forms (A Simple Workflow)

Here’s a clean, repeatable process that keeps everything organized.

Step 1: Pull a vendor report from your accounting system

QuickBooks, Xero, and Wave all let you export a list of vendors and total payments for the year.
Filter for anyone paid $600+.

Step 2: Verify W‑9s are on file

If you’re missing any, request them immediately.
Contractors are legally required to provide them.

Step 3: Confirm payment method

This determines whether you issue the form or a third‑party processor does.

Step 4: Generate and file forms

Use any reputable filing service or software to prepare and submit your 1099s. Most tools will also handle sending copies to recipients and submitting the required information to the IRS electronically.

Step 5: Update your process for next year

The best time to fix your workflow is right after tax season.

Add these rules:

• Collect W‑9s before first payment

• Tag contractors correctly in your accounting system

• Track payment method for each vendor

• Review contractor list quarterly

This turns January from chaos into routine.

What If You’re Behind?

If you’re reading this and thinking, “I’m not ready,” you’re not alone.
Most businesses scramble in January because their books aren’t clean or their vendor records are incomplete.

The good news:
You can still get compliant — and avoid penalties — with a quick cleanup and a structured filing process.

And if you need help, that’s exactly what Acctually does.

Final Thought

1099s and W‑2s don’t have to be stressful. With the right systems, clean books, and a simple workflow, tax season becomes predictable — not panic‑inducing.

Preparation creates clarity. Clarity creates confidence. And confidence is the antidote to tax‑season stress.

🚀 Ready to Reduce Your Finance Anxiety?

If you want clean books, clear dashboards, and a finance system that actually supports you, Acctually can help. Let’s build the structure that gives you clarity — and your time (and sanity) back.

👉 Visit us at Acctually.com or reach out for a free consultation.

📧 Email us at hello@acctually.com
🌐 Visit us at https://acctually.com/
📞 Call us at (646) 543-4916‬