How to Create and Send a 1099 Form to Your Contractors

You create a 1099 by reporting payments you made to independent contractors, then sending copies to them and the IRS

A 1099 form documents money you paid to someone who worked for you as a contractor rather than an employee. You are responsible for creating and sending it if you paid that person $600 or more in a calendar year. The form has several versions depending on the type of payment — the most common is the 1099-NEC (for non-employee compensation like freelance work) and the 1099-MISC (for other types of payments). You fill it out with the contractor's name, address, and tax ID, list the amount paid, and send copies to the contractor, your state tax authority, and the IRS by January 31 of the following year.

The 1099 serves two purposes: it tells the IRS what you paid out, and it gives the contractor a record to use on their own tax return. The IRS matches the 1099 you file against what the contractor reports as income, so accuracy matters. If the numbers do not match, the IRS will investigate.

Key Takeaways

• You must issue a 1099-NEC to any contractor you paid $600 or more during the calendar year for services.
• The contractor needs their Social Security Number or Employer Identification Number (EIN) before you can file — request it on a W-9 form if you don't have it.
• You file 1099s with the IRS using Form 1096 as a cover sheet, and you must also send copies to your state and to the contractor by January 31.
• Software like IRS Free File partners, tax preparation platforms, or payroll services can generate 1099s for you, or you can fill out the paper form by hand.
• Failing to issue a 1099 when required can result in penalties, and the IRS matches 1099s filed with the IRS against contractor tax returns.

When you need to create a 1099

You create a 1099 when you pay a contractor — someone who is not your employee — for work or services. The threshold is $600 in a single calendar year. If you paid a plumber $400 in January and $300 in December, you owe a 1099. If you paid three different freelance writers $500 each, you do not owe a 1099 for any of them because each payment is under $600. The $600 rule applies to most types of contractor payments, though some categories have different thresholds (for example, payments to attorneys are reportable at any amount).

The type of 1099 you use depends on what you paid for. The 1099-NEC covers non-employee compensation — freelance work, consulting, contract labor. The 1099-MISC covers other payments like rent, royalties, or prizes. If you are unsure which form applies, the IRS instructions for each form spell out what goes on it. Most small business owners use the 1099-NEC because it is the most common form for contractor work.

Getting the contractor's tax identification information

Before you can create a 1099, you need the contractor's legal name and tax ID. For most people, that is their Social Security Number. For a business, it is an Employer Identification Number (EIN). You should collect this information when you first hire the contractor, not when you are filing at year-end. Waiting until January to ask for it often means delays and incomplete filings.

The standard way to collect it is to have the contractor fill out a W-9 form (Request for Taxpayer Identification Number and Certification). The W-9 is not filed with the government — it stays in your records. If a contractor refuses to provide a W-9 or tax ID, you are required to withhold 24 percent of their payments and send that to the IRS. This is called backup withholding, and it is a strong incentive for contractors to cooperate. You can read the W-9 from the IRS website for free.

Filling out the 1099-NEC form

The 1099-NEC has boxes for specific information. Box 1 is where you enter the total amount you paid the contractor for non-employee compensation. Boxes 2 through 7 are for other types of payments (like payments to a subcontractor who is also a corporation, or medical payments), which most small businesses leave blank. The form asks for your name, address, and EIN in the top section, and the contractor's name, address, and tax ID in the middle.

You need to create a separate 1099-NEC for each contractor. If you paid one contractor $2,000 and another $1,500, you create two forms. The form comes in triplicate on paper — one copy for the IRS, one for the contractor, and one for your state — or you can file electronically, which is now the standard method. If you file on paper, you must use the official IRS forms; photocopies are not accepted.

Common mistakes include entering the wrong tax ID (which causes the IRS to flag the return), misspelling the contractor's name, or listing the wrong year. Double-check the contractor's name and number against the W-9 before you file. A single digit wrong in the tax ID can cause the IRS to reject the form or match it to the wrong person.

Filing 1099s with the IRS and your state

You send 1099s to three places: the IRS, your state tax authority, and the contractor. The important date is January 31 of the year following the payment. If January 31 falls on a weekend, the important date moves to the next business day. Missing this important date triggers penalties even if you file a few days late.

For the IRS, you file electronically through the FIRE system (Filing Information Returns Electronically) or through an approved tax software provider. Paper filing is still allowed but is discouraged. You submit all your 1099s together with a Form 1096 as a cover sheet, which summarizes how many 1099s you are filing and the total amounts. Your state may have its own filing system and important date — some states require 1099s by January 31, others by February 28. Check your state's tax authority website for the exact requirement.

You must also send a copy of the 1099-NEC to the contractor by January 31. This is the contractor's copy, and they use it to file their own tax return. Many contractors expect this in early January so they have time to gather their documents. Send it by mail or email depending on what the contractor prefers.

Tools and software for creating 1099s

You have several options for creating 1099s. If you use payroll software like QuickBooks, Gusto, or ADP, the software can generate 1099s for you automatically if you mark workers as contractors rather than employees. If you use tax preparation software, many include a 1099 module where you enter contractor names and amounts, and the software creates the forms and handles filing.

The IRS also partners with free tax software providers through the IRS Free File program. Some of these partners offer 1099 creation as part of their service. You can also fill out the form by hand using the paper version from the IRS website, though this is slower and more error-prone if you have many contractors. If you have only one or two contractors, filling out the form by hand and mailing it may be the simplest route. If you have ten or more, software is worth the cost because it reduces errors and handles the filing for you.

Penalties for not filing 1099s

The IRS imposes penalties if you fail to file a required 1099 or file it late. The penalty varies based on how late you file and whether the failure was intentional. As of 2024, the penalty ranges from $50 to $280 per form for unintentional failures, depending on how many days late you are. Intentional disregard can result in a penalty of at least $560 per form. These penalties add up quickly if you have multiple contractors.

Beyond the penalty, the IRS matches 1099s filed with contractor tax returns. If you report that you paid a contractor $5,000 but the contractor reports $3,000 in income, the IRS notices the discrepancy and may contact one or both of you. This is why accuracy matters — the contractor's return must match what you report. Mismatches can trigger audits or correspondence from the IRS.

Frequently Asked Questions

Do I need to create a 1099 if I paid someone in cash?

Yes. The form of payment does not matter. If you paid a contractor $600 or more in cash during the year, you still owe a 1099. The contractor should have reported the income on their tax return regardless, but you are required to file the 1099 to document your side of the transaction.

What if the contractor gives me a wrong tax ID on the W-9?

You are responsible for filing what the contractor gave you on the W-9. If the ID is wrong, the IRS will likely flag it when the contractor files their return, and they will contact the contractor to correct it. You should keep the W-9 in your records in case the IRS asks you about it later.

Can I file 1099s after January 31?

You can file late, but you will owe a penalty. The penalty is smaller if you file within 30 days of the important date than if you file much later. If you realize in February that you missed the important date, file when ready rather than waiting until April.

Do I need to send the contractor a copy if they are a business, not a person?

Yes. Even if you paid a contractor who is a corporation or LLC, you still create a 1099-NEC and send a copy to them. The business will use it to reconcile their records and file their own return.

What if a contractor asks me not to file a 1099?

You must file it if the payment meets the threshold. A contractor cannot ask you to skip it, and you cannot agree to skip it. Both of you are required to report the income and payment. If a contractor pressures you not to file, that is a sign they may not be reporting income correctly.