Before You Start

This guide assumes you have a Xero Premium subscription. You’ll also need existing contractor records in Xero or be ready to create them.

Overview

20 min
Setup Time
Intermediate
Difficulty
Annually
Maintenance

What You’ll Learn

  • How to collect W-9s directly from your contractors
  • Accurately track all contractor payments in Xero
  • Generate and e-file 1099 forms seamlessly
  • Maintain tax compliance for all independent contractors

1. Initial Setup in Xero

Ensure Xero is ready to manage your contractor information and 1099 reporting:

Key Setup Steps

  • Verify your organization is set up for US tax filing.
  • Enable 1099 reporting features in Xero’s financial settings.
  • Confirm all contractor records include necessary contact details.

Contractor Data Checklist

  • Full legal name and business name (if applicable)
  • Physical address for tax purposes
  • Taxpayer Identification Number (TIN) - SSN or EIN
  • Default 1099 account for payments

2. Xero’s 1099 Features vs. Manual Tracking

You have two main approaches to managing 1099 contractors.

Method A: Xero’s Built-in Tool

This is the recommended, integrated solution for Xero Premium subscribers.

Pros:
  • Automated W-9 collection.
  • Direct e-filing to IRS.
  • Accurate payment tracking.
Cons:
  • Requires Xero Premium.
  • Learning curve for new users.
  • Limited to certain 1099 types.

Method B: Manual Tracking & External Software

This involves tracking payments outside Xero and using separate tax software.

Expert Tip: Using Xero’s integrated W-9/1099 tool streamlines the entire process, drastically reducing year-end stress and improving data accuracy. It’s an investment that pays off in compliance and time saved.

3. Step-by-Step: Managing Contractors & 1099s

This workflow outlines the process for efficient contractor management and 1099 filing using Xero.

For managing contractor details, Xero integrates the necessary fields directly into the supplier contact record.

{
  "contractor_id": "C-001",
  "name": "Jane Doe Consulting",
  "tax_id_type": "EIN",
  "tax_id": "XX-XXXXXXX",
  "address": "123 Main St, Anytown, CA 90210",
  "is_1099_eligible": true
}

4. Collecting W-9s & Tracking Payments

  1. 1

    Invite Contractors to Submit W-9

    From the ‘Contacts’ menu, send W-9 requests to eligible suppliers. Xero provides a secure portal for submission.

  2. 2

    Approve W-9 Information

    Review submitted W-9s for accuracy. Once approved, Xero automatically updates the contractor’s profile.

  3. 3

    Review Contractor Payments

    Regularly check the 1099 report in Xero to ensure all eligible payments are correctly categorized throughout the year.

Common Error: Incorrect Vendor Type

Ensure your contractor is set up as a ‘Supplier’ (Vendor) in Xero and not a ‘Customer’. Only payments made to suppliers are tracked for 1099 purposes.

5. Filing Your 1099s

Year-End 1099 Checklist

  • Verify all contractor W-9s are complete and approved
  • Confirm total payments for each contractor meet IRS thresholds
  • Review and reconcile the 1099 report data
  • Submit forms to the IRS directly through Xero’s e-filing

Need Help?

Get Support

Having trouble with your Xero 1099 setup? Our team can help troubleshoot your specific workflow and ensure compliance.

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