The NYC Bookkeeper: This 1099 Rule Could Cost You BIG
If you're a small business owner in New York City, understanding tax forms like the W-9 and 1099 is essential for staying compliant with IRS regulations. If a vendor fails to provide a completed W-9, the IRS requires business owners to withhold 24% of their payments and remit it as backup withholding. This often overlooked rule is in place to ensure the IRS collects taxes from vendors who may not otherwise report their income via 1099 forms.
Whether you're a contractor or hiring one, knowing how these forms work will help you avoid penalties and keep your bookkeeping in order. If managing these tasks feels overwhelming, working with a NYC bookkeeper can be a game-changer.
What is a W-9 Form?
A W-9 is an IRS document called the Request for Taxpayer Identification Number and Certification. It’s used to collect key information from contractors, freelancers, and vendors hired by businesses. If you own a business in New York City, you'll need to request W-9s from every non-employee contractor you work with.
What Information Does a W-9 Include?
A W-9 provides essential business and tax details about the contractor, including:
Legal name (or business entity name)
Doing Business As (DBA), if applicable
Tax classification (Sole Proprietor, Partnership, S-Corp, etc.)
Business address
Tax Identification Number (TIN) – either an SSN for individuals or EIN for businesses
Signature certifying that the information is accurate
Why Do Business Owners Need W-9s?
Business owners are required to file a 1099-NEC for any contractor or company they pay $600 or more in a year via cash, check, ACH, wire transfer, or Zelle. The IRS uses this information to track self-employment income.
It’s the business owner’s responsibility to collect W-9s before making payments, ensuring compliance with tax laws. Missing or incorrect W-9 information can lead to IRS penalties and extra headaches during tax season.
A skilled NYC bookkeeper can help you establish effective W-9 workflows, so you can focus on running your business stress-free.
Best Practices for Handling W-9 Forms
Request a W-9 upfront from every contractor.
Store W-9s securely (cloud storage is recommended due to sensitive data).
Review and update W-9s when a vendor changes their address, EIN, or legal status.
Keep these forms on file—they are not submitted to the IRS but are needed for accurate 1099 reporting.
Add a clause in your payment process that includes that you will be required to withhold 24% of the total payment until complete W-9 information has been collected.
If creating a structured payment workflow sounds like a lot, hiring a NYC bookkeeper can help keep your records in check!
What is a 1099-NEC Form?
A 1099-NEC is the IRS form used to report non-employee compensation. If you run a small business, you’ll likely issue 1099-NECs to independent contractors who provide services.
Who Gets a 1099-NEC?
A 1099-NEC is issued to contractors and vendors who:
Were paid $600 or more with cash, check, ACH, wire transfer, or Zelle in a calendar year
Provided services (not goods)
Are not a corporation (except in cases of medical, legal, or healthcare payments)
Common professions that receive 1099-NECs include:
Plumbers, electricians, and HVAC technicians
Freelancers, consultants, and marketers
Roofers, painters, and general contractors
Bookkeepers and tax preparers
Caterers, DJs, and event planners
Why is the 1099-NEC Important for Your Business?
The IRS requires businesses to file 1099-NECs by January 31st each year to the IRS and to the vendor. Failing to do so can result in financial penalties to your business:
$60-$310 per form for late filing
$630 per form (or 10% of reported income) for intentional non-compliance
A NYC bookkeeper can support you with all contractor payments by ensuring accuracy, compliance and keeping track of deductions.
How to File a 1099-NEC
Collect W-9s from all eligible vendors before making full payments.
Enter vendor details into your accounting software (QuickBooks Online is a popular choice).
Mark vendors as 1099-eligible in your bookkeeping system.
E-file 1099s by January 31st using QuickBooks or another IRS-approved filing service.
Send copies to contractors on time so they can report their income properly.
Backup Withholding: What Happens When a Vendor Doesn’t Provide a W-9?
If a vendor fails to provide a completed W-9, the IRS requires business owners to withhold 24% of their payments and remit it as backup withholding. Incomplete or missing W-9 forms can prevent a business owner from filing a 1099 form, leading to a underreporting of income to the IRS.
When Does Backup Withholding Apply?
The vendor fails to provide a TIN (Taxpayer Identification Number).
The IRS notifies the business that the provided TIN is incorrect.
The vendor has been flagged for underreporting income and is subject to backup withholding.
How to Handle Backup Withholding
Inform the vendor that you need a completed W-9 to avoid withholding 24% of their payments.
Track withheld amounts in your accounting system as a liability.
Remit withheld taxes to the IRS using Form 945 (Annual Return of Withheld Federal Income Tax).
Report backup withholding on the vendor’s 1099-NEC at year-end.
If backup withholding applies, it can be an administrative burden. A NYC bookkeeper can help ensure you stay compliant and properly track withheld payments.
How a NYC Bookkeeper Can Help With 1099s
Staying on top of W-9s, 1099s, and bookkeeping can be time-consuming, especially for busy small business owners. Working with a New York City bookkeeping service can ensure your finances are organized and IRS deadlines are met.
Benefits of Hiring a NYC Bookkeeper:
Accurate recordkeeping – Avoid missed deadlines and IRS penalties.
Efficient 1099 tracking – Ensure all contractor payments are properly documented.
Time savings – Focus on growing your business instead of dealing with paperwork.
Compliance assurance – Stay ahead of tax deadlines with expert support.
If this list overwhelms you, it might be time to work with a professional NYC bookkeeper.
Final Thoughts
Understanding the difference between W-9s and 1099-NECs is essential for small business owners. Whether you're hiring contractors or working as one, these forms ensure compliance with federal and NYC tax laws, and help maintain organized financial records.
Want to do it yourself? Make sure to download this 1099 Cheat Sheet to stay on top of compliance.
If you find managing these forms overwhelming, hiring a NYC bookkeeper can make the process seamless. A bookkeeper will ensure your W-9s, 1099s, and overall bookkeeping are handled properly, so you never have to worry about tax season surprises.
Are you looking for a NYC bookkeeper? Schedule a free discovery call today with us at Check Bookkeeping!
