Tracking 1099 Contractors the Right Way: Avoid Costly Penalties

If you pay contractors, the rules are straightforward but unforgiving. Missing or sloppy 1099 tracking means penalties, angry vendors, and wasted Januarys. Set this up correctly now and you’ll issue forms on time with minimal effort.

Collect W‑9s before the first payment. Make it policy: no W‑9, no pay. Store the forms in a shared folder and enter vendor details completely — legal name, tax ID, and mailing address. This small friction at onboarding saves hours during year‑end.

Track payments by vendor and by payment method. In most cases, amounts paid by check, ACH, or cash count toward 1099 totals, while payments made via credit card or third‑party networks (like PayPal goods & services) do not, because they’re reported on Form 1099‑K. Set vendor terms in your software to reflect this so totals are correct automatically.

Use a dedicated “Contractor Labor” expense account to simplify reporting. If you split contractor costs across jobs or departments, add sub‑accounts but keep a parent roll‑up so your 1099 control total is visible. Run a Vendor Summary report quarterly to make sure you’re on pace.

Decide now whether you’ll file through your accounting software, a 1099 e‑file service, or your payroll provider. Do a dry run in November to confirm addresses, TIN matches, and totals. The January 31 deadline arrives faster than you think; pre‑flight checks eliminate emergency corrections.

Finally, communicate expectations. Let contractors know you’ll send 1099s by the end of January and that they’re responsible for updating address changes. This professional tone reduces disputes and keeps relationships healthy.

If you want someone watching these totals monthly so you’re never surprised at year‑end, SimplifiBooks can monitor contractor payments as part of our 30‑point review and surface issues before they become fines.