How to Pay Contractors: Methods, W-9 and 1099 (2026)
How to pay contractors in 2026: collect a W-9, choose ACH, check or an app, handle the new $2,000 1099-NEC threshold and pay international contractors.
Quick answer: To pay contractors, sign a contract, collect a Form W-9 (or W-8BEN for foreign contractors), receive an invoice, and pay by ACH, check, wire or a payment platform without withholding payroll taxes. Track totals so you can file Form 1099-NEC by January 31 for US contractors paid $2,000 or more in 2026.
Paying independent contractors looks simple: they send an invoice, you send money. But the method you choose affects your costs and your tax reporting, and the paperwork you collect upfront decides whether year-end 1099 filing takes ten minutes or ten hours. This guide explains how to pay contractors step by step, compares payment methods, covers the W-9 and the 2026 1099-NEC changes, and explains how to pay international contractors.
This is general information, not tax or legal advice. Confirm your obligations with a tax professional or the IRS.
What is an independent contractor?
An independent contractor is a person or business that provides services to you but is not your employee. They control how the work is done, usually supply their own tools, can work for other clients, and invoice you for their services. Unlike employees, you do not withhold income tax or pay Social Security, Medicare or unemployment taxes on their pay; they handle their own self-employment tax.
Classification is a legal test, not a choice. The IRS looks at behavioral control, financial control and the type of relationship. Our guide to W-2 vs 1099 workers explains the factors in detail. If someone works set hours under your direction using your equipment, they may be an employee even if you call them a contractor.
How to pay contractors: step by step
- Sign a contract. Define the scope, rate, payment terms, invoice requirements and who owns the work. A written agreement also supports contractor status.
- Collect Form W-9 from US contractors before the first payment. It gives you their legal name, entity type and TIN (SSN or EIN). The IRS publishes the form on its About Form W-9 page.
- Collect Form W-8BEN or W-8BEN-E from foreign individuals or entities instead of a W-9.
- Agree on the payment method and collect bank details securely, ideally through your bank or payment platform rather than email.
- Require an invoice for each payment, with invoice number, dates of service, description, rate and total. Contractors can use our independent contractor invoice guide or a contractor invoice template.
- Approve and pay according to the agreed terms, such as net 15 or net 30.
- Record the payment with the method used, because card and PayPal payments are treated differently for 1099 purposes.
- File Form 1099-NEC by January 31 for each US contractor who meets the threshold.
Ways to pay contractors compared
| Method | Typical cost (illustrative) | Speed | 1099 handling | Best for |
|---|---|---|---|---|
| ACH transfer from your bank | Free to a few dollars per transfer | 1 to 2 business days (same day available) | You file 1099-NEC | Regular US contractors |
| Check | Check stock and postage, plus fraud risk | Days | You file 1099-NEC | Contractors who insist on paper |
| Domestic wire | Outgoing fee often $15 to $35 (varies by bank) | Same day | You file 1099-NEC | Large, urgent payments |
| Payroll or contractor platform (Gusto, QuickBooks, ADP and similar) | Monthly base plus per-contractor fee | Typically 2 to 4 business days, faster options exist | Platform often prepares and files 1099-NEC | Several contractors, recurring payments |
| PayPal (goods and services) or card | Fees, typically paid by the recipient | Minutes | Reported on 1099-K by the processor, not 1099-NEC | Occasional, small payments |
| International platforms (Wise, Payoneer, Deel and similar) | Transfer and conversion fees or monthly fees | Same day to several days | Usually no 1099 for foreign contractors working abroad | Contractors outside the US |
For deeper comparisons, see ACH vs wire transfer and our guide to setting up direct deposit, which works for contractor payments too.
The W-9, 1099-NEC and 2026 threshold change
Under the One Big Beautiful Bill Act, the reporting threshold for Form 1099-NEC rose from $600 to $2,000 for payments made after December 31, 2025, with inflation adjustments after 2026. Key rules for payments made in 2026:
- Threshold: File a 1099-NEC for each US contractor (individual, partnership or most LLCs) you paid $2,000 or more for services in the course of your business.
- Exceptions: Corporations generally do not receive 1099-NECs, except for payments to attorneys and certain medical payments. Payments for merchandise, rent paid through a property manager and personal (non-business) payments are not reported on 1099-NEC.
- Card and third-party network payments: Not reported by you on 1099-NEC; the processor handles 1099-K reporting.
- Deadline: January 31 to the contractor and the IRS.
- E-filing: Required if you file 10 or more information returns in total; the IRS IRIS portal is free.
- Backup withholding: If a contractor does not provide a correct TIN, you may need to withhold 24% from reportable payments.
See the IRS's About Form 1099-NEC page for the official instructions. For more detail, read our guides to the 1099-NEC threshold for 2026, W-9 and 1099 for contractors and how to file a 1099-NEC.
Worked example: paying three contractors in 2026
A small marketing agency uses three contractors during 2026.
| Contractor | W-9 / W-8 entity type | How paid | 2026 total | 1099-NEC needed? |
|---|---|---|---|---|
| Jordan Lee, copywriter | W-9, sole proprietor | ACH | $8,400 | Yes, over $2,000 by ACH |
| Pixel Forge LLC, web developer | W-9, LLC taxed as S corporation | ACH | $14,750 | No, S corporation (not an attorney) |
| Ana Ruiz, illustrator | W-9, sole proprietor | $1,200 by ACH, $2,600 by PayPal goods and services | $3,800 | No: only $1,200 is reportable by the agency; PayPal reports the rest on 1099-K |
| Ravi Patel, video editor in India | W-8BEN, foreign individual working in India | Wise transfer | $5,200 | No, foreign person, services performed outside the US |
The agency files one 1099-NEC, for Jordan Lee. Because it collected W-9s and W-8BENs upfront and recorded the payment method for each payment, year-end reporting takes minutes. The agency also keeps every contractor invoice on file to support the expense deduction.
How to pay international contractors
- Collect a W-8BEN (individuals) or W-8BEN-E (entities) to document foreign status. Keep it on file; it generally remains valid for three years unless circumstances change.
- Agree on currency. Paying in the contractor's currency avoids confusion over exchange rates; paying in USD shifts currency risk to them.
- Choose a cost-effective method. International wires can carry fees on both ends plus intermediary deductions. Platforms such as Wise or Payoneer often cost less; compare in our Wise vs Payoneer guide.
- Get the right bank details. Depending on the country, you may need an IBAN, SWIFT code, IFSC or other local identifiers. Our explainer on SWIFT code vs IBAN covers what to ask for.
- Consider an employer of record or contractor platform if you hire many people abroad or need local compliance support.
If the foreign contractor performs any work while physically in the US, different withholding rules can apply, so get advice before paying for US-based services.
Paying contractors on a schedule
Consistent payment timing keeps good contractors loyal and makes your cash flow predictable. Common patterns:
- Per project or milestone: pay on approval of each deliverable. Our guide to milestone payments covers structuring them.
- Monthly retainer: pay a fixed amount for an agreed scope at the start or end of each month.
- Biweekly on hours: pay for hours logged in the prior two weeks, based on approved timesheets.
- Net terms: pay within 15 or 30 days of an approved invoice, aligned with your accounts payable run.
Whatever you choose, write it in the contract and stick to it. If you have several contractors, a weekly payables run with a clear cutoff (for example, invoices approved by Tuesday are paid Friday) reduces ad hoc payments and errors. Our guide to the accounts payable process shows how to set one up, and the vendor onboarding checklist covers collecting W-9s and bank details securely.
State reporting and other filings
Some states require their own copy of 1099-NEC forms or participate in the Combined Federal/State Filing Program, and several require reporting of new independent contractors to the state new hire registry. California, for example, requires businesses to report independent contractors paid $600 or more in a calendar year. Check your state revenue and labor department websites each year, as these rules do not always follow the federal threshold change.
What a good contractor invoice includes
Requiring a proper invoice protects both sides. Ask contractors to include:
| Field | Example |
|---|---|
| Contractor name and business name | Jordan Lee, Lee Copy Studio |
| Invoice number and date | JL-2026-019, October 31, 2026 |
| Your business name and address | Brightside Marketing LLC |
| Service period and description | October 2026: 6 blog posts at $250; 1 landing page at $600 |
| Total due and terms | $2,100, net 15 |
| Payment details | ACH details or payment platform |
Contractors can create invoices like this in our free invoice generator and number them consistently with the invoice number generator.
Common mistakes when paying contractors
- Paying before getting a W-9. Chasing TINs in January is painful, and backup withholding rules may apply.
- Issuing 1099-NECs for card or PayPal payments, which double-reports income.
- Using the old $600 threshold for 2026 payments, or forgetting that states may have their own reporting rules.
- Misclassifying employees as contractors to avoid payroll taxes.
- Changing contractor bank details on an email request without calling to confirm, a common fraud tactic.
- Paying without an invoice, which weakens your records and expense deduction.
Summary
How to pay contractors comes down to four habits: a written agreement, a W-9 or W-8 before the first payment, a clear invoice for every payment, and a record of the method used. Pick ACH or a contractor platform for regular US payments and a low-cost international service for overseas talent, then file 1099-NECs for qualifying US contractors by January 31. If your contractors need a quick way to bill you, point them to our invoice generator: it is free, needs no sign-up, and downloads a PDF built right in the browser.
Frequently asked questions
Do I need a W-9 before paying a contractor?
It is best practice to get a completed Form W-9 before the first payment. It gives you the contractor's legal name, business entity type and taxpayer identification number, which you need to file Form 1099-NEC if payments reach the threshold. If a US contractor refuses to provide a TIN, you may be required to apply backup withholding at 24% on reportable payments.
What is the 1099-NEC threshold for 2026?
For payments made after December 31, 2025, the threshold for reporting nonemployee compensation on Form 1099-NEC rose from $600 to $2,000 under the One Big Beautiful Bill Act, with inflation adjustments planned after 2026. So for payments made in 2026, you generally file a 1099-NEC when you pay a contractor $2,000 or more for services in the course of your business. Confirm current figures on irs.gov.
Do I send a 1099-NEC if I paid a contractor through PayPal or a card?
Generally no. Payments made by credit card, debit card or through a third-party payment network such as PayPal are reported by the payment settlement entity on Form 1099-K, so the IRS instructions say you should not also report them on Form 1099-NEC. Payments by ACH from your bank account, check or cash are not covered by that exception and count toward the 1099-NEC threshold.
Do I need to issue a 1099 to an LLC?
It depends on how the LLC is taxed. Single-member LLCs and LLCs taxed as partnerships generally receive a 1099-NEC if payments reach the threshold. LLCs that have elected to be taxed as C or S corporations generally do not, except for certain payments such as legal fees. The tax classification box on the contractor's W-9 tells you which applies.
How do I pay a contractor who lives outside the US?
Collect Form W-8BEN from an individual or W-8BEN-E from a foreign entity to document their foreign status, then pay by international transfer, a service such as Wise or Payoneer, or a contractor platform. Payments to a foreign person for services performed entirely outside the US are generally not subject to US withholding or 1099 reporting. Local laws in the contractor's country may still apply to the relationship.
When is Form 1099-NEC due?
Form 1099-NEC is due to both the contractor and the IRS by January 31 of the year after you made the payments. If January 31 falls on a weekend or legal holiday, the deadline moves to the next business day. Businesses filing 10 or more information returns in total must generally file electronically, which you can do through the IRS IRIS portal or tax software.
Can I pay contractors through payroll software?
Yes. Many payroll services, such as Gusto, QuickBooks Payroll and ADP, include contractor payments by direct deposit, collect W-9s during onboarding and prepare 1099-NEC forms at year end. Contractor-only plans are often cheaper than full payroll. Make sure the software treats them as contractor payments, without withholding payroll taxes, unless the worker should actually be classified as an employee. Compare total monthly cost with doing ACH transfers yourself.
What happens if I misclassify an employee as a contractor?
Misclassification can lead to back payroll taxes, penalties and interest, plus liability for unpaid overtime, minimum wage and benefits under federal and state labor laws. The IRS looks at behavioral control, financial control and the relationship between the parties. If you control how, when and where someone works, they may be an employee regardless of what the contract says. Get advice if you are unsure.
Invoice Creator Editorial Team
Guides on invoicing, cash flow and small-business finance from Invoice Creator, operated by Next Software Development Company. Content is reviewed for accuracy against the fields our own invoice generator produces.
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