How To Issue a 1099 Form to Your Contractors and Freelancers

When You Must Issue a 1099-NEC or 1099-MISC

You must issue a 1099-NEC (Nonemployee Compensation) to any person or business you paid more than $600 in a calendar year for services — if they are not your employee. This includes freelancers, independent contractors, consultants, and vendors. The $600 threshold is the federal minimum; some states set it lower, and some industries have different thresholds (for example, payments to attorneys are reported on 1099-NEC regardless of amount in some cases).

The form you use depends on what you paid for. Use 1099-NEC for nonemployee compensation — work performed by someone who is not on your payroll. Use 1099-MISC for other types of payments, such as rent, royalties, or prizes. Most small businesses use 1099-NEC for contractor payments.

You do not issue a 1099 to another business if you paid them for goods only (not services). You also do not issue one to a corporation that provided services, though you may need to issue one to a sole proprietor or partnership that did the same work. If you are unsure whether someone counts as an employee or contractor, the IRS has a test based on how much control you exercise over their work and how they are paid.

Key Takeaways

• Issue a 1099-NEC to any non-employee you paid over $600 for services in a calendar year, and send copies to the IRS and to the contractor by January 31.
• You need the contractor's name, address, and Taxpayer Identification Number (usually their Social Security Number or EIN) before you can file.
• File Copy A (the IRS copy) with the IRS on paper or electronically; give the contractor Copy B and keep Copy C for your records.
• If a contractor does not provide their TIN, you must withhold 24 percent of their payment as backup withholding and send it to the IRS.
• Penalties for not issuing a 1099 or issuing it late range from $50 to $280 per form, depending on how late you file.

Gather the Contractor's Information Before Year End

Before you can issue a 1099, you need the contractor's Taxpayer Identification Number (TIN). For most individuals, this is their Social Security Number. For businesses, it is their Employer Identification Number (EIN). Ask the contractor to fill out a Form W-9 — this is a straightforward one-page form where they provide their name, address, and TIN. You do not send the W-9 to the IRS; it is for your records only.

Request the W-9 before or at the time you first pay the contractor. If you pay someone without collecting a W-9 first and they do not provide their TIN when you ask, you are required to withhold 24 percent of all future payments as backup withholding and send that money to the IRS. This creates extra work and delays payment to the contractor, so collecting the W-9 upfront is the simplest path.

Keep the W-9 on file for at least four years. If a contractor's information changes — for example, they get an EIN after you have already paid them — ask for an updated W-9.

Calculate What You Owe and Track Payments Throughout the Year

Add up all payments you made to each contractor during the calendar year. Include cash, check, credit card, and bank transfer payments. Do not include payments for goods only, payments to employees (those go on W-2 forms instead), or payments to corporations (unless the contract specifies you must report them).

If the total for one contractor is $600 or more, you must issue a 1099-NEC. If it is under $600, you do not have to issue one, though you may choose to for your own records. Some contractors will ask you to issue one anyway, even if the amount is below $600 — you can do this, but it is not required.

The easiest way to track this is to keep a spreadsheet or use accounting software that totals payments by contractor as you go. This way, you will know by December 31 which contractors need a 1099 and you will not have to hunt through records in January.

Obtain the 1099-NEC Form and Fill It Out

You can obtain blank 1099-NEC forms from the IRS website (irs.gov), from tax software providers, or from office supply stores. The form has five copies: Copy A (for the IRS), Copy B (for the contractor), Copy C (for your records), Copy D (for state tax use if required), and Copy E (for your second state if you have multistate contractors).

Fill in Box 1 (Nonemployee Compensation) with the total amount you paid the contractor for services. This is the main box most people use. Other boxes on the form are for specific situations — for example, Box 2 is for direct sales of $5,000 or more, and Box 3 is for fishing boat proceeds. For a typical contractor payment, you will only use Box 1.

Enter your business name, address, and EIN in the boxes at the top. Enter the contractor's name, address, and TIN in the boxes below. Make sure the spelling and numbers match the W-9 exactly — mismatches cause the IRS to reject the form or flag it for review. If the contractor is a sole proprietor, use their legal name, not their business name.

File Copy A With the IRS and Send Copies to the Contractor

You have two options for filing: paper or electronic. Most businesses with more than a few contractors file electronically using the IRS Filing Information Returns Electronically (FIRE) system or through a tax software provider that supports e-filing. Paper filing is slower and more error-prone, but it is still allowed.

The important date to file Copy A with the IRS is January 31 of the year following the payment year. For example, payments made in 2024 are reported on a 1099-NEC filed by January 31, 2025. If January 31 falls on a weekend or holiday, the important date moves to the next business day.

You must send Copy B to the contractor by January 31 as well. You can mail it, email it as a PDF, or deliver it in person — the contractor must receive it by the important date. Keep Copy C in your files for at least four years. If you have contractors in multiple states, some states require you to file Copy D with the state tax authority; check your state's rules.

Handle Missing or Incorrect TINs

If a contractor does not provide a TIN or provides one that does not match IRS records, you must take action. First, ask the contractor to provide or correct their TIN. If they do not respond or provide an invalid number, you must withhold 24 percent of all future payments and send that withheld amount to the IRS as backup withholding.

Continue withholding 24 percent until the contractor provides a valid TIN. Once they do, you can stop withholding on future payments. When you file the 1099-NEC, mark it with the TIN you have on file, even if you believe it is incorrect — the IRS will match it against their records and contact the contractor if there is a mismatch.

Do not guess at a TIN or make one up. If you genuinely cannot obtain one, file the 1099-NEC with the TIN you have and note in your records that the contractor did not provide a valid number.

Understand Penalties for Late or Missing Forms

The IRS charges penalties if you do not file a 1099-NEC on time or at all. The penalty depends on how late you are. If you file within 30 days of the important date, the penalty is $50 per form. If you file more than 30 days late but before August 1, the penalty is $100 per form. If you file after August 1 or do not file at all, the penalty is $280 per form. These penalties can add up quickly if you have many contractors.

You can request a penalty waiver if you have reasonable cause — for example, if your accountant made a mistake or you had a serious illness that prevented you from filing. Send a written request to the IRS explaining the reason, along with documentation.

If you issue a 1099-NEC with incorrect information, you can file a corrected form (Form 1099-NEC with "CORRECTED" written at the top) at any time. Send the corrected copy to the contractor and file it with the IRS as soon as you discover the error.

Frequently Asked Questions

Do I need to issue a 1099 if I paid someone with a credit card or payment app?

Yes. Credit card and payment app payments count toward the $600 threshold just like cash or checks. However, if you use a payment processor like PayPal or Square, they may issue their own 1099-K form to the contractor for those transactions. You should still issue a 1099-NEC for the total amount you paid, to avoid duplicate reporting.

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

You must issue one if the payment exceeds $600. The contractor's preference does not change the legal requirement. However, make sure the contractor understands that they are responsible for reporting the income on their own tax return whether or not they receive a 1099 from you.

Can I issue a 1099 to a spouse or family member?

Yes, if they are not your employee and you paid them over $600 for services. However, sole proprietors do not have to issue a 1099 to their spouse if the spouse is not a separate business entity. Check your state's rules, as some have different requirements for family payments.

What happens if I issue a 1099 to someone who should have been a W-2 employee?

The IRS may reclassify the worker as an employee and assess back payroll taxes, penalties, and interest. If you are unsure whether someone is a contractor or employee, use the IRS worker classification test or consult a tax professional before paying them.

Do I need to issue a 1099 for payments to a corporation?

Generally no, unless the contract or law requires it. Payments to C corporations, S corporations, and LLCs taxed as corporations do not require a 1099. Payments to sole proprietors and partnerships do require one if they exceed $600.