Solo Biz Soft Editorial Team Paying an independent contractor correctly comes down to three things: get the paperwork first, pick a payment method, and know when you’re actually required to issue a 1099. One important number changed recently — the federal 1099-NEC filing threshold rose from $600 to $2,000 for payments made starting in 2026, so some older guides you’ll find online are now out of date.
Step 1: Get a W-9 before you pay anything
A W-9 is how a contractor gives you their taxpayer ID number and confirms their tax status, and you need it to file a 1099 correctly later. Collect it before the first payment, not after — you won’t know in advance who will cross the filing threshold for the year, and chasing a contractor for tax paperwork months later is far harder than asking before they’ve started.
Step 2: Pick a payment method
Direct deposit or ACH transfer is the most common method for ongoing contractor relationships, moving money electronically straight into their account. A paper check works fine for occasional or one-off payments. Cash is legal too, but it comes with much heavier recordkeeping responsibility on you, since there’s no electronic paper trail if you’re ever asked to substantiate the payment.
Step 3: Know the 1099-NEC threshold
If you pay a non-employee $2,000 or more for services in a calendar year, you’re generally required to file Form 1099-NEC for that contractor. This is a real, recent change — the threshold applies to payments made starting in 2026 and replaces the long-standing $600 threshold, so don’t rely on older articles still quoting $600. The safest practice is still collecting a W-9 from every contractor regardless of how much you expect to pay them, since it’s easy to underestimate a relationship that grows over the year.
What happens without a valid W-9
If a contractor doesn’t give you a taxpayer ID, doesn’t certify it correctly, or the IRS notifies you it’s incorrect, you may be required to withhold backup withholding, currently 24% of the payment, and send it to the IRS on their behalf. This is another reason to get the W-9 sorted before money changes hands — it’s a compliance problem you can avoid entirely with one piece of paperwork up front.
For the contractor’s own side of this — what they owe and when — see the self-employment tax calculator and 1099 vs W-2 calculator.
Frequently asked questions
Do I need a W-9 even if I don't expect to pay a contractor $2,000?
It’s the safer practice, since relationships can grow past the threshold during the year without you planning for it, and collecting it later is harder than collecting it upfront.
Is paying a contractor in cash illegal?
No, it’s legal, but it puts the recordkeeping burden entirely on you since there’s no automatic electronic trail — keep your own detailed records if you pay this way.
Did the 1099-NEC threshold really change?
Yes — the federal threshold rose from $600 to $2,000 for payments made starting in 2026. Some states may still have their own separate, lower reporting thresholds, so check your state’s rules too.
More free tools: Self-employment tax calculator · 1099 vs W-2 calculator · All free tools
This article is general information, not tax or legal advice. Federal and state filing thresholds and withholding rules can change — confirm current requirements with the IRS or a tax professional before relying on any figure here.