The W-9 is the easy part

Every finance team that pays contractors knows January. It is the month you find out that eleven of the people you paid last year gave you a W-9 with a typo in their Social Security number, that four of them have since moved, and that two of them were actually paid through an LLC whose name nobody wrote down.

None of that is a January problem. It is a problem that was created the day each contractor was added and discovered nine months later, when it is hardest to fix.

What the IRS actually checks

When you file a 1099-NEC, the IRS compares the name and taxpayer identification number on the form against its own records. If they do not match, you may get a CP2100 notice and be required to start backup withholding — holding back 24% of future payments to that contractor — until they give you a corrected W-9.

The match is stricter than people expect. The name has to be the name the IRS has on file for that TIN. For an individual that is usually their legal name as it appears with the Social Security Administration. For a business it is the name on its EIN letter, which is often not the name on its invoices.

Check it the week you collect it

The IRS runs a TIN matching service for payers. You submit a name and a TIN and it tells you whether they match. It does not tell you what the correct values are, but it tells you early enough that you can ask.

Pinnacle submits every new W-9 to that service within the hour it is completed. When the answer comes back as a mismatch, three things happen:

• The contractor gets an email asking them to check the name and number, with the most common causes listed.
• The contractor is marked in your list with a TIN to fix flag, which you can filter on.
• Payments keep going out. A mismatch is a paperwork problem, and we do not hold someone's pay over it unless you choose to.

Most mismatches are fixed within a week. The usual causes are a business name entered where a personal name was needed, a maiden or married name, or two digits transposed.

Addresses drift, too

The 1099-NEC copy goes to the address on file. People move, and contractors move more than employees. A form mailed to an address someone left in June does not arrive, and the contractor asks you for it in March, which is when they finally sit down to do their taxes.

We ask contractors to confirm their mailing address once in November, with a link that takes ten seconds. We also send every copy by email, so the paper version is a backup rather than the only copy.

Which states want their own copy

The federal filing is one step. Some states also require a copy of the 1099-NEC, either through the Combined Federal/State Filing program or directly. The list changes, and the thresholds differ. Pinnacle files the state copies along with the federal ones, based on each contractor's address, so you do not have to keep that list yourself.

A W-9 collected and checked in March costs a minute. The same W-9 discovered wrong in January costs a week of email.

None of this is glamorous. It is the part of contractor payouts that nobody notices when it works, and the part that eats a controller's January when it does not.