Every January, a portion of our client conversations goes like this: "We need to issue 1099s, but I don't have W‑9s for half these vendors, and three of them are off payroll now, and two never responded to our email." The fix is operational, not technical. It requires treating the W‑9 as a contract prerequisite, not a reporting task.
Why this gets mishandled
The information return regime looks simple on paper — if you pay an unincorporated US vendor more than the threshold for services during the calendar year, you owe them and the IRS a Form 1099‑NEC by January 31. The friction is collecting the vendor information after the relationship has started, sometimes after it has ended.
Vendors who were responsive when you were about to pay them a $5,000 invoice are markedly less responsive when you are emailing in February about a form they see no benefit in completing. Meanwhile, the penalty for failure to file a correct information return has been climbing.
The new $2,000 threshold
The One Big Beautiful Bill Act raised the 1099‑NEC / 1099‑MISC reporting threshold from $600 to $2,000, effective for payments made in calendar year 2026 and later. The $600 floor — unchanged since 1954 — had been stuck in place for seventy years. The new threshold will index for inflation starting in 2027.
Two things to understand:
- The 2025 reporting season (forms issued in January 2026) still uses the $600 threshold.
- Payroll processors and AP systems will need a configuration change for calendar‑year 2026 transactions. If yours auto‑flags vendors at $600, it will over‑report — not a penalty issue, but a vendor‑relations one.
The workflow that prevents January pain
The rule we apply to every client:
- W‑9 before the first payment. No W‑9, no invoice payment. Exceptions are rare and should be escalated, not routine.
- Store the W‑9 with the vendor master. Not in an email folder. Not on a shared drive without an index. In your accounting system's vendor record, scanned and attached.
- Re‑certify every three years. The W‑9 does not expire, but a lot can change: ownership structure, EIN, address, filing status.
- Flag foreign vendors early. Non‑US vendors need W‑8BEN or W‑8BEN‑E, not W‑9, and the withholding posture is very different.
Penalty regime
Penalties for failure to file a correct information return, for 2025 filings:
- Up to 30 days late: $60 per form
- 31 days late through August 1: $130 per form
- After August 1 or never filed: $340 per form
- Intentional disregard: $680 per form, with no cap
The penalty is doubled — once for the IRS copy, once for the payee copy. A hundred missing 1099s in the "intentional disregard" bucket is a $136,000 exposure. For most small businesses this is the single largest avoidable compliance liability on the books.
If a vendor refuses to provide a W‑9, or the TIN they provided does not match IRS records, you are required to withhold 24% of subsequent payments and remit to the IRS on Form 945. This is the hammer. We rarely see it invoked — the threat is usually enough.
Practical tips
Three things that make the January turn painless:
- Run a mid‑year vendor audit in July. Pull the list of vendors paid more than $1,000 YTD, cross‑check against W‑9s on file, and clean up before November.
- Use a vendor onboarding form. One page, captures legal name, entity type, TIN, address, and services performed. Attach the W‑9.
- Do not wait on e‑file. Businesses issuing ten or more information returns across all types must e‑file starting with tax year 2023. If your software does not e‑file, find software that does.
The return on a disciplined AP workflow is boring and substantial: no penalty exposure, no January crunch, no awkward emails to former vendors. Worth the one afternoon of setup.