How to Pay Contractors in the United States: Complete 2025 Guide
For US businesses paying US-based independent contractors
Quick Summary
Best payment methods for US contractors:
- ACH/Direct deposit (cheapest for domestic)
- Zelle/Venmo (instant for small amounts)
- Check (traditional, slower)
- Wise (if contractor prefers it)
Key requirements:
- W-9 form (before first payment)
- 1099-NEC (if paid $600+ annually)
- Proper classification (IRS tests)
- State-specific rules (varies)
Why This Guide Is Different
If you're a US business paying US contractors, you don't need Wise, PayPal, or international payment platforms. You need:
- Domestic ACH transfers (cheapest)
- Proper tax documentation (1099-NEC)
- State compliance (varies by state)
- Good contractor management (that's where Kontrable comes in)
Payment Methods Compared
| Method | Cost | Speed | Best For |
|---|---|---|---|
| ACH/Direct Deposit | $0-$3 | 1-3 days | Regular payments, most cost-effective |
| Zelle/Venmo | Free | Instant | Small one-time payments (<$500) |
| Check | $0 | 3-7 days | Contractors who prefer it |
| Wise | $3-$5 | 1-2 days | Contractor's preference |
Recommended: ACH Direct Deposit
Why ACH is best for US → US payments:
- Lowest cost ($0-$3 per transfer vs $5-$15 international)
- Reliable and established
- Easy to set up via your bank
- Contractor gets USD in US bank account
How to set up:
- Get contractor's bank routing number + account number
- Set up ACH transfer in your bank (or via Wise, PayPal)
- Schedule payment
- Takes 1-3 business days
The Real Challenge: Managing US Contractors
Payment is the easy part. The hard part is:
- 1099-NEC filing (due Jan 31 for prior year)
- Proper classification (IRS audits are increasing)
- State-by-state rules (some states have stricter tests)
- Tracking payments (for your records and theirs)
- Invoice management (approvals, proof, reconciliation)
This is what Kontrable solves.
Tax Requirements (US-Specific)
1. W-9 Form (Before First Payment)
What it is: Contractor certifies their taxpayer info (SSN or EIN)
When to collect: Before first payment
How to get it:
- Download from IRS.gov
- Send to contractor
- Store for your records (don't file with IRS)
2. 1099-NEC Form (Annual Filing)
What it is: Report of payments made to contractor
When required: If you paid $600+ in the calendar year
Deadline:
- Send to contractor: Jan 31
- File with IRS: Jan 31
How to file:
- Use accounting software (QuickBooks, etc.)
- Use IRS FIRE system
- Or let Kontrable auto-generate (coming soon)
3. Backup Withholding (Rare)
If contractor doesn't provide W-9, you may need to withhold 24% of payments. Most contractors provide W-9, so this rarely applies.
State-Specific Considerations
Contractor classification rules vary by state:
Strictest states (harder to classify as contractor):
- California (ABC test)
- Massachusetts
- New Jersey
- Illinois
More flexible states:
- Texas
- Florida
- Georgia
Key question: Does the contractor pass your state's classification test?
Common Mistakes (And How to Avoid Them)
Mistake 1: No W-9 on File
Problem: You can't file 1099-NEC without contractor's SSN/EIN
Solution: Collect W-9 before first payment (Kontrable automates this)
Mistake 2: Forgetting About $600 Threshold
Problem: You paid $590... then hired them again for $50. Oops, you hit $640 total. Now you need 1099.
Solution: Track cumulative payments per contractor (Kontrable does this automatically)
Mistake 3: Missing Jan 31 Deadline
Problem: IRS penalties for late 1099s
Solution: Use software that auto-generates 1099s in December (ready to file Jan 1)
Mistake 4: Misclassifying Employees as Contractors
Problem: IRS audit, back taxes, penalties
Solution: Use IRS 20-factor test, keep documentation, get legal review if unsure
Frequently Asked Questions
Q: Do I need an EOR platform like Deel for US contractors?
A: No. EOR is for hiring employees internationally. US contractors handle their own taxes. You just need to file 1099-NEC.
Q: What if the contractor lives in a different state?
A: Doesn't matter. They're responsible for their state taxes. You just file 1099-NEC with IRS.
Q: Can I pay contractors under $600 and avoid 1099?
A: Yes, but you should still collect W-9 and track payments in case you hire them again later.
Q: What's the difference between 1099-NEC and 1099-MISC?
A: 1099-NEC is for contractor services (what you use 99% of the time). 1099-MISC is for other payments like rent.
Q: Do I need a lawyer to create contractor agreements?
A: Recommended for your first template. After that, you can reuse it. Kontrable offers AI-generated templates (not legal advice, review with counsel).
Get Started
Managing US contractors?
- Collect W-9 forms
- Set up ACH payments via your bank
- Track cumulative payments
- File 1099-NEC by Jan 31
Want to automate this?
Kontrable launches January 2026 with contractor management tools built for US businesses. Join the waitlist →