No one brushes their teeth only the day before a dentist appointment and expects a clean bill of health—yet many businesses approach 1099 compliance in exactly this way. Every January, they scramble to collect W-9s, validate tax IDs, and rush out filings before the deadline. This last-minute frenzy creates stress and exposes companies to serious penalties if documentation is missing or incorrect.
In a recent Earmark Expo webinar, Gordon Walsh from Avalara demonstrated how modern automation tools like Avalara 1099 & W-9 can transform 1099 compliance from a reactive, annual challenge into a proactive, year-round process. By embracing real-time TIN matching and automated W-9 collection, businesses can significantly reduce compliance risks while freeing up valuable time during the year’s busiest season.
1099 Compliance Shouldn’t Be an Annual Fire Drill
Federal law requires businesses to collect W-9s before making payments to vendors. Despite this requirement, many firms still rely on manual processes: chasing vendors for handwritten forms, deciphering errors, and hoping everything arrives before January 31st. Without valid taxpayer information, businesses must withhold 24% for backup taxes—a situation that can create significant cash flow issues for vendors and administrative headaches for businesses.
“January’s 1099 season is really just where we feel the pain of all the things that we’ve done year-round that maybe didn’t get done,” explains Gordon Walsh. This reactive approach inevitably leads to costly, last-minute fixes and potential penalties.
The Power of Automated W-9 Collection
Traditional W-9 collection relies heavily on email and PDF exchanges—a system Gordon critiques saying, “There’s no other place in my life and business anywhere where I’m giving handwritten documents to people and expecting to do business with them.”
Modern automation tools solve these challenges through:
- Guided electronic forms with built-in validation
- Intuitive menus that reduce classification errors
- Centralized dashboard for tracking compliance status
- Automated classification checks for 1099 requirements
- Electronic delivery consent during onboarding
Having a system to collect vendor information ensures the capture of correct legal entity names, preventing downstream mismatches with IRS records.
Real-Time Validation: Preventing Costly Mistakes
Real-time TIN matching serves as the cornerstone of modern compliance systems. Instead of discovering mismatches after filing or receiving notices months later, Avalara’s system validates tax identification numbers during vendor onboarding.
When mismatches occur, vendors can correct issues immediately, preventing:
- Notices from the IRS
- Mandatory 24% backup withholding
- Time-consuming vendor follow-up
- Potential penalties and fines
The system returns validation results directly to vendors during the submission process, allowing for immediate corrections. This preventative approach significantly reduces the risk of receiving IRS notices demanding backup withholding or corrections.
Streamlined Year-End Processing
The platform’s dashboard provides clear visibility into compliance status using a stoplight system:
- Green: Ready for e-filing and electronic delivery
- Yellow: E-filing ready but requires physical mail delivery
- Red: Issues requiring immediate attention
For corrections, which are provided at no additional cost, the process has been simplified to a few clicks. Users can edit information directly in the system, with automatic filing of corrected forms to both state and federal authorities.
Integration and Accessibility
The system integrates with major accounting platforms like QuickBooks and includes bulk import capabilities for larger datasets. A global search function enables quick access to historical forms, allowing users to resend documents to recipients within seconds rather than searching through saved PDFs.
Historical data is maintained for five years, and the platform includes:
- Secure document-sharing capabilities
- State-specific compliance automation
- Address verification through USPS
- Multiple user access with role-based permissions
Pricing and Implementation
Rather than charging by the number of clients or users, pricing is based on total form volume. This tiered pricing model creates economies of scale—from several dollars per form at lower volumes to cents per form for high-volume users. While physical mailing incurs additional costs, the system encourages electronic delivery through early consent collection, helping businesses reduce expenses and administrative overhead.
The platform’s ease of use has earned it an NPS score of 79, reflecting its intuitive design and comprehensive feature set. With continued development, including a recently tripled development team, the system aims to expand its integration capabilities and streamline data flow between various business systems.
Through this combination of preventative validation, automated collection, and streamlined processing, businesses can transform their 1099 compliance from an annual emergency into a manageable, year-round process.
Watch the full Earmark Expo webinar to see these automation tools in action and learn how to implement a proactive approach to compliance.