Whether you file a 1099 depends on the payee's tax classification, and whether that contractor should really be an employee is a question the app will raise before an auditor does.
The W-9 Answers The 1099 Question
A payee's federal tax classification comes off their W-9, and it's what makes "do we issue a 1099?" a known fact rather than a guess. Individuals, sole proprietors, partnerships, and LLCs generally get one. Corporations are exempt.
A payee with no W-9 on file is treated as needing a 1099. That's the safe default on purpose — nobody should silently fall off the filing list because a form was never collected.
- Individual / sole proprietor — 1099 issued.
- Partnership and LLC — 1099 issued.
- C and S corporations — exempt.
- Unknown, with no W-9 — treated as issuable, the safe default.
- The app lists a contractor for a 1099 once payments reach $600 in a year.
Pro tip: Collect the W-9 before the first payment, not in January. Chasing a tax ID from someone you no longer owe money to is one of the least winnable tasks in business.
The Misclassification Radar
Some contractors look, to the IRS, exactly like employees — and if one is reclassified, the back taxes and penalties are yours. The radar scores that risk from data the app already holds. There's no questionnaire to fill in.
It weighs the factors the common-law and state ABC tests actually use: being paid hourly rather than by the job, working full-time hours on your schedule, being an individual with no business entity, carrying no liability insurance of their own, and having been with you continuously for over a year.
- Paid hourly, like an employee — contractors usually price the job.
- Working 30+ hours a week on your schedule.
- An individual with no business entity.
- No general liability insurance of their own.
- Continuous engagement beyond a year.
- Scored low, moderate, or high risk.
What To Do With A High Score
A high score is not an accusation — it's a heads-up that this relationship would be hard to defend. The usual answers are to reclassify the person as an employee, or to change the arrangement so it genuinely looks like contracting: pay by the job, require their own insurance, stop dictating the schedule.
The radar only assesses contractors. Employees are already classified, so there's nothing to score.
- High risk means hard to defend, not proof of anything.
- Fix it by reclassifying, or by changing the arrangement.
- Only contractors are scored.
- The liability lands on the payer.