If you work with independent contractors throughout the year, you need to report those payments to the IRS on Form 1099-NEC. The process is fairly simple if you only need to send one or two, but it becomes more complex when working with multiple freelancers. To avoid fees or penalties, make sure to fill out the correct form and meet the IRS filing deadline.
Who needs to receive a 1099
You must issue a Form 1099-NEC to any independent contractor you paid $600 or more for services that year. Independent contractors include freelancers, consultants, and vendors who are not your employees.
In addition to Form 1099-NEC, some businesses may need to use Form 1099-MISC for the following types of payments:
- Rent.
- Prize winnings.
- Attorney fees.
- Medical and healthcare payments.
- Other income payments.
However, you do not need to issue a 1099 if the contractor is registered as a C corporation or an S corp, or if you paid them via a third-party, like PayPal or Venmo. And you don’t have to worry about a 1099 if the payments were for personal reasons, not business purposes.
The deadline for filing Form 1099 is January 31 or the following Monday if the deadline falls on a weekend.
How to collect and store W-9s for contractors
Before making that first payment to a contractor, you should request a completed Form W-9. This form provides the contractor’s legal name, address, and taxpayer identification number (TIN), which allows you to issue accurate 1099s.
To ensure you have this information for every contractor, make requesting a W-9 part of your onboarding process. Verify TINs using the IRS’ TIN Matching Program — this helps prevent fraud and protects your business from incorrect reporting penalties.
Keep electronic copies of all W-9s in a secure location for at least four years. It’s also a good practice to request a new W-9 annually. The IRS doesn’t require this, but it can help ensure that every contractor’s information is up to date.
Deadlines and penalties for Form 1099 filing
The deadline for filing Form 1099 is January 31 or the following Monday if the deadline falls on a weekend. If you miss the deadline for 2025, you'll have to pay a fine ranging from $60 to $330, depending on how late you are. If the IRS determines that you intentionally disregarded the filing deadline, you'll have to pay the maximum $660 fine.
How to issue 1099s
The IRS allows you to submit tax forms electronically or through the mail. If you mail paper forms, you must include Form 1096, Annual Summary and Transmittal of U.S. Information Returns. However, this form isn't required if you file electronically.
If you send Form 1099 electronically to your contractors, you must meet the following requirements:
- Receive written consent to send the statement electronically.
- Provide clear instructions on how to withdraw consent or request a paper copy.
- Specify any software or hardware needed to access the form.
- Make these forms available on your website until October 15 of the following year.
Recommended e-filing service for small businesses
E-filing can save you time and ensure accuracy. The following IRS-approved platforms offer tools like automatic TIN matching, secure data storage, and direct IRS submission, among other features:
- Tax1099: Offers integration with QuickBooks and real-time TIN verification.
- Avalara: Allows batch uploads, e-delivery to contractors, and state filing.
- Formstax efile4Biz: Provides printable forms, PDF copies, and combined federal/state filing options.
- IRS Information Returns Intake System (IRIS): The IRS’ free e-file system, ideal for businesses that file fewer than 100 forms per year.
Complete and send Form 1099
There are two different copies of Form 1099-NEC:
- Copy A: The version you'll submit to the IRS.
- Copy B: The form you'll send to your contractor.
Both copies must be submitted by January 31, regardless of whether you file electronically or by mail. You can also upload 1099s to a secure website or use a third-party service. In either case, you must inform recipients when their statements are posted and are ready for viewing.
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