How to Simplify Contractor Taxes this Tax Season

Tax season can be overwhelming for both US contractors and their clients. Both sides must ensure they’ve tracked payments correctly, filed the right forms, and met all the deadlines.

That’s why most people searching for guidance aren’t just looking for another ‘how to’ article. They want ways to make the process simpler with clear steps, fewer surprises, and practical insights into what they need to do.

Our guide focuses on exactly that: simplifying contractor taxes so you can move through tax season with confidence.

Deel already helps hundreds of businesses from inside and outside the US with contractor payments, so we know exactly what to expect. Below, we break down the process into clear stages so global businesses know what to do, when to do it, and what resources are available.

1. Set reminders about tax deadlines

Effective tax management starts long before January. Mark all the key dates in your calendar so you can give yourself enough time for tax preparation and meet every deadline. The IRS fines you for late filings and payments unless you can prove you had reasonable cause.

First, set internal deadlines for sending Form W-9 to independent contractors. You need to give your team sufficient time to complete the form and send it back, and some may need chasing up. While the Internal Revenue Service (IRS) doesn’t give businesses a formal deadline, you must have all your workers’ paperwork back before the end of January to complete the next step.

Next, set a reminder for the Form 1099-NEC submission date. You must send copies of this paperwork to both U.S. contractors and the IRS by January 31.

2. Confirm each worker’s self-employed status

Make sure the working arrangement meets federal and state criteria for independent contractor status. Generally speaking, self-employed individuals must have complete autonomy over how and when they perform tasks and shouldn’t be dependent on a single client.

This step is critical because it’s not always clear when contractors should be classified as employees. For example, a designer might get paid per project and work from home most of the week like a freelancer, but still count as an employee because they’re required on-site sometimes.

Companies are at significant legal risk here. If you misclassify a worker, you could incur penalties for up to 3% of their wages and have to pay months’ worth of interest and back-tax payments. Ideally, you should use a specialist solution like Deel Contractor to automatically verify that each agreement meets the relevant criteria before everyone signs the agreement and the work commences.

3. Clarify your responsibilities as a client

Businesses are required to file Form 1099-NEC if they pay an independent worker more than $600 in a single tax year. This includes any expenses you’ve paid for office supplies or travel.

Keep track of each worker’s income to check whether you exceed the threshold. You can use a contractor management solution like Deel to maintain clean records of all payments throughout the year. Once you hit the limit, our software notifies you and generates the 1099-NEC.

4. Review contractor tax responsibilities

Understanding the difference between US employee and contractor tax requirements can help both sides clarify their responsibilities. This ensures nothing gets overlooked until it’s too late and the deadlines have already passed.

Here are the main differences for contractors and their clients to be aware of:

5. Check state tax requirements

US contractors may have additional state and local taxes depending on where they live. You must confirm their permanent residence and check their state’s rules to ensure you’re filing correctly.

Use your contractor’s W-9 to check their tax residence. If they live in a state with personal income tax, you may need to file some additional paperwork. For example, Connecticut requires you to file a 1099-MISC and a W-2G if you’ve paid workers for any services there during the previous tax year.

The good news is that states usually set the same deadlines as the federal government. But double-check in case they follow a different schedule.

State-by-state tax compliance can get complex because each jurisdiction has its own regulations. Deel’s Continuous Compliance Hub can support you with local expertise and regular updates as the laws change.

6. Compile all the necessary paperwork

As tax season approaches, ensure you have all the correct forms. Most paperwork should be available to download from either the IRS or the state tax department website.

Finding all the latest versions of forms can be challenging if you’re short on time or unfamiliar with the websites. If you have US contractors scattered across states, it becomes even more complex.

Dedicated solutions like Deel Contactor can simplify document management. Our platform can automatically generate both the W-9 and 1099 based on information in your system about each worker and send them to the right places. This saves you time sending documents back and forth and eliminates the risk of filing the wrong paperwork.

7. Complete and file forms

Once you’ve gathered all the correct forms, ensure you’ve filled them in correctly and submitted them by the deadlines.

The IRS provides downloadable instructions for the 1099-NEC. Similarly, most states should provide a step-by-step to filling in the information on their forms for businesses. If you’re unsure what to do, you’re also free to outsource the task to an accountant and let them file on your behalf.

Note that you must create three copies of the 1099-NEC — one for the worker, one for the IRS, and one for your business. Use the same information from the W-9 to complete all the copies.

Alternatively, use Deel Contractor to automate the entire process for the 1099-NEC free of charge. Our platform can generate the forms, complete them using information from W-9s, and send them to the right places. We store copies of everything on our secure Cloud system.

8. Wait for confirmation from the IRS

When you file a 1099-NEC, the IRS should send you an acknowledgement to confirm:

• the form was received
• whether it was accepted or rejected
• any errors that need to be corrected

Similarly, Deel Contractor shows you the status of any 1099-NEC filed through our system. Payroll teams can review everything through our centralized dashboard and contact our 24/7 support team if they have any questions.

Pitfalls to avoid with independent contractor tax management

Certain pitfalls can derail tax management, cause issues for freelancers, and potentially lead you to miss the IRS deadlines. Here’s what to know so you can keep the process on track:

• Confusing forms: As they have similar names, it’s easy to confuse the W-2 and the W-9. Note that the W-2 only goes to employees and the W-9 goes to contractors
• Overseas workers: Similarly, freelancers based outside the US don’t need to complete the W-2. They have their own form called a W-8BEN
• Last-minute W-9s: Businesses can’t file the 1099-NEC without the information from the W-9, so you’re counting on freelancers to provide you with the paperwork on time. Handle document collection during onboarding via a solution like Deel to eliminate this risk
• Multiple addresses: Contractors may have triggered residency in more than one location if they moved partway in the tax year. Ask them to keep you updated about any changes of address, and check the tax requirements for each state
• Record keeping: The IRS expects you to have a copy of the paperwork in the event of an audit. Use a secure solution like Deel to automatically store all these records for the required amount of time
• Missing support: While your business isn’t responsible for your contractors’ income tax returns, you can still offer them assistance. Make it easy for them to access your system so they can check payments, reimbursed expenses, and more while preparing their paperwork

Take the stress out of contractor taxes with Deel

Contractor taxes are complex, but the right steps and resources can make the process more manageable. You can prevent costly errors while avoiding last-minute pressure.

Deel Contractor can support tax management from year to year. Our platform automates key elements of the payroll process and stores all your documents on our secure, Cloud-based system. While we serve companies, both clients and contractors can benefit from:

• Automatic W-9 collection and storage
• Free 1099 creation and direct IRS e-filing
• Centralized payment records to support accurate income reporting
• Compliance workflows organized by US entity
• Deadline reminders for businesses
• Secure, audit-ready document storage

Do you work with US contractors? Book a call with the Deel team to see how we can simplify hiring and payments.