AP compliance in the US: W-9, 1099, and sales tax automation

AP compliance in the United States

Accounts-payable compliance in the US touches multiple federal and state regulations. From collecting W-9 forms to issuing 1099s and navigating the complex world of sales tax, companies have to move through a demanding regulatory environment.

Form W-9: the foundation of vendor management

What is the W-9?

The W-9 (Request for Taxpayer Identification Number and Certification) is the form vendors complete to share their tax information:

• Taxpayer's legal name.
• Entity type (individual, corporation, LLC, etc.).
• TIN (Tax Identification Number) or SSN.
• Address.
• Backup withholding certification.

W-9 best practices

• Collect before the first payment: don't pay without a valid W-9 on file.
• Verify the TIN: use the IRS TIN Matching service.
• Refresh periodically: request new W-9s every three years.
• Store securely: these documents contain sensitive information.

1099 forms: reporting payments

Types of 1099

• 1099-NEC: non-employee compensation (freelancers, contractors).
• 1099-MISC: miscellaneous payments (rents, prizes, medical payments).
• 1099-K: payments via payment cards and third-party networks.
• 1099-INT: interest income.
• 1099-DIV: dividends.

2026 reporting thresholds

• 1099-NEC: $600 or more in the year.
• 1099-MISC (rents): $600 or more.
• 1099-MISC (royalties): $10 or more.
• 1099-K: $600 or more (reduced from the previous threshold).

Deadlines

• January 31: send 1099s to recipients.
• January 31: file 1099-NEC with the IRS.
• February 28: paper filing of other 1099s with the IRS.
• March 31: electronic filing with the IRS.

Sales tax: the multi-state challenge

Nexus: where do you owe?

After South Dakota v. Wayfair (2018), states can require remote sellers to collect sales tax based on "economic nexus":

• Physical nexus: physical presence in the state.
• Economic nexus: sales exceeding a threshold (often $100K).
• Click-through nexus: referrals from in-state affiliates.
• Marketplace nexus: sales made through marketplaces.

The complexity of sales tax

• More than 13,000 sales-tax jurisdictions across the US.
• Rates ranging from 0% to more than 10%.
• Different taxability rules by product.
• Exemptions that vary by state and by intended use.

Exemption certificates

When a buyer is exempt from sales tax, they must provide an exemption certificate:

• Resale certificates: for resellers.
• Exempt organization: for non-profits.
• Government: for government entities.
• Manufacturing: manufacturing-use exemptions.

Backup withholding

24% backup withholding applies when:

• The vendor does not provide a TIN.
• The TIN provided is incorrect.
• The IRS notifies you that backup withholding applies.
• The recipient does not certify they are not subject to it.

Automation with Cedalio

W-9 management

• Automatic requests: send W-9 requests to new vendors.
• TIN Matching: automatic verification with the IRS.
• Expiration alerts: notifications when a refresh is needed.
• Secure storage: encrypted vault for documents.

1099 preparation

• Payment tracking: running totals by vendor.
• Automatic classification: identification of the correct 1099 type.
• Form generation: automatic creation of 1099s.
• E-filing: electronic submission to the IRS.

Sales-tax compliance

• Nexus monitoring: tracking thresholds state by state.
• Rate determination: correct rates per jurisdiction.
• Exemption management: storing and tracking certificates.
• Return filing: preparing state returns.

Invoice validation

• Verification of vendor tax information.
• Validation of sales tax charged.
• Detection of discrepancies.
• Compliance reporting.

State-specific considerations

States without sales tax

Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon (though Alaska allows local sales tax).

Origin- vs. destination-based states

• Origin-based: tax based on the seller's location.
• Destination-based: tax based on the buyer's location.

Conclusion

AP compliance in the US demands attention to both federal and state regulations. Automation not only reduces errors and saves time — it shields the company from significant penalties.