Checklist of Required Documentation for Your Business's Contractors

Updated December, 2024

Independent contractors offer your architecture or engineering business a lot with their unique skills and expertise, and the flexibility of not bringing on more full time employees.  Engaging contract works or consultants for certain projects and services can be a huge benefit for your company. But employees and contractors are different when it comes to onboarding with the correct paperwork and filing your business tax returns. Let’s take a look at what documentation you need for your independent contractors:

Required Documentation for Contractors

When you determine whether a person is an employee or a contractor, you must bring them onboard officially. An important part of that process is the completion of required forms. To follow IRS regulations, there are a few forms you need to have ready when hiring a contractor:

• W-9 Form

• 1099-MISC

• 1099-NEC

Most of these are available directly from the IRS website here:
Forms and associated taxes for independent contractors

W-9 Form

First, you need your contractor to fill out a W-9 form. The W-9 is a request for a Taxpayer Identification Number (TIN). However, getting someone to sit down and take the time to fill out a form can be challenging. Try to make this as easy as possible by sending them the W9 pdf with ready to fill out fields. Or consider using an online provider. The W-9 should be kept in your records for at least four years in case the IRS or the contract worker has any questions.

You can collect the W-9 electronically in order to streamline the process and save time and headaches on both sides. You can download a pdf from the IRS that is ready to be filled out and you send out this electronic version to the contractor. They fill the form out on their own time and return it to you prior to starting work.

The key information required from your contractors is their legal name, taxpayer identification number (TIN), address, and entity type. Once you receive the form back, validate the information from your contractor using the IRS TIN Match service or a third-party service. Making sure you receive the correct TIN will ensure that your contractor is correctly hired. It also helps you avoid costly fines from the IRS later on.

IMPORTANT: Do not pay a contractor until you get the W-9 back AND validate the information on it. Contractors will sometimes balk at providing the information. They might want to avoid the IRS knowing about the payments you make to them. Or they might have security concerns. However, the IRS requires the W-9 to be completed, so neither objection from the contractor is valid. Any security concern about their Social Security Number can be alleviated if they obtain an Employer Identification Number instead.

If you fail to obtain a W-9 and pay someone without the correct TIN and name combination, you, as the employer, will be liable for the 24% backup withholding that is required without this information. If the contractor still refuses to provide the information, you can protect your business by beginning backup withholding at 24% from the first payment.

1099-NEC Form

If you pay a contractor more than $600, you must also fill out a 1099-NEC form. This form was introduced in the 2020 tax year so if you haven't hired a contract worker in a while this may be new to you. This form documents how much an independent contractor earned while working for your company. The deadline to send the 1099-NEC form to the recipient and to the IRS is January 31. If the date is a weekend or holiday, the form is due to the recipient and IRS on the next business day. 

When you need to file form 1099-NEC: 

• If you’ve made payments of $600 or more to an individual who is not your employee (personal payments are not reportable).

• If the following three conditions are met:

• You made the payment to someone who is not your employee.

• You made the payment for services in the course of your trade or business (including government agencies or non-profit businesses).

• You made the payment to an individual, a partnership, an estate, or, in some cases, a corporation.

E-file 1099 Forms through the IRS

To make this process easier, the IRS has an e-filing system. The Information Returns Intake System (IRIS) Taxpayer Portal is a system that provides a no cost online method for you to electronically file Forms 1099 directly with the US government. This free electronic filing service is secure, accurate and requires no special software, making it unnecessary to pay any third party for this service.

This helps all small businesses that currently sends their 1099 forms on paper to the IRS. Through the Taxpayer Portal, you can submit automatic extensions, make corrections and reduce expenses related to paper filing. The Taxpayer Portal allows you to enter data to create Forms 1099 by either keying in the information or uploading a .csv file. 

Knowing there is a free option through the government means that you should be careful about any company that tries to charge you for these services. 

1099-MISC Form

The 1099-MISC Form is used to report miscellaneous payments. These are the situations where you need to file a 1099-MISC for an independent contractor: 

• If you paid at least $10 for royalties

• If you paid at least $600 for:

• Rent

• Prizes and awards

• Other income payments

• Medical and health care payments

• Crop insurance proceeds

• Fish (or other aquatic life) purchased from anyone in the business of catching fish

• Payments to an attorney

• If you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (place of business that remains unmoving for a considerable amount of time and includes places like hotels or grocery stores; opposite of a permanent retail establishment could be a mobile business).

Changes to Non-Employee Compensation

As we mentioned above, the 1099-NEC Form was new as of the 2020 tax year, and reporting non-employee compensation has changed since then as well. You must now report using Form 1099-NEC rather than in Form 1099-MISC. Make sure that you plan accordingly. The 1099-MISC form will still be used to report vendor payments such as rent, prizes and awards, and gross proceeds payments to an attorney.

Hiring a contractor takes some paperwork and planning, but eForms and guidance make the task much simpler. With electronic W-9s, you can send your information returns electronically to both the contractors and IRS. This adds flexibility and convenience. You can make edits and adjustments to entries before the forms are submitted to the IRS. In addition, online tools for these forms can handle separate state filings and send forms to contractors via USPS as well as email. At this point in time, it is advised that all of these forms are handled electronically for your convenience and to make things faster and easier for your contract workers. 

To prepare these forms, you can integrate with accounting software like BQE CORE, bulk upload using an Excel template, or complete each form manually. If you’d like to learn more about using BQE CORE for the simplest tax filing process, check out our free eBook, Contractor Hiring Compliance: Navigating the Tax Form Filing Process.