How to Pay 1099 Contractors and Keep Records Straight

The basics of paying a 1099 contractor

You pay a 1099 contractor the same way you pay anyone else — by check, bank transfer, credit card, or cash — but you do not withhold taxes, Social Security, or Medicare from their pay. The contractor is responsible for those payments themselves. Your only legal obligation is to report what you paid them to the IRS on a Form 1099-NEC (for non-employee compensation) if the total reaches $600 or more in a calendar year.

The payment itself has no special rules. You can pay weekly, monthly, per project, or however you and the contractor agreed. What matters is keeping a record of what you paid, when, and for what work — because that record is what you will need to fill out the 1099-NEC at the end of the year.

Before you pay anyone as a 1099 contractor, get their W-9 form on file. This is a one-page IRS form where they provide their name, address, and tax ID (usually their Social Security number or EIN). You need this information to report them to the IRS. Ask for it before the first payment; most contractors expect this.

Key Takeaways

• You do not withhold taxes from 1099 contractor payments — they handle their own tax obligations.
• Collect a signed W-9 form from every contractor before you pay them, so you have their tax ID on file.
• Keep a record of every payment: date, amount, contractor name, and what work it was for.
• If you pay a contractor $600 or more in a calendar year, you must file a Form 1099-NEC with the IRS by January 31 of the following year.
• Send a copy of the 1099-NEC to the contractor by the same important date so they can report it on their own tax return.

Getting a W-9 form and keeping it current

A W-9 is the contractor's declaration of their tax status and ID. You can read a blank W-9 from the IRS website (irs.gov/forms/w-9), print it, and have the contractor fill it out and sign it. Many contractors will email you a completed copy, or you can ask them to fill it out digitally if your accounting software supports that.

The W-9 does not expire, but if a contractor's tax ID changes — for example, they move from a sole proprietorship to an LLC — ask for an updated W-9. Keep the W-9 on file for at least four years. You do not send it to the IRS; it is for your records only.

If a contractor refuses to provide a W-9, you cannot legally pay them as a 1099 contractor. You would need to treat them as an employee instead, which means withholding taxes and filing different paperwork. This is rare, but it is a hard stop.

Recording payments and tracking totals

You need to track every payment to every contractor so you know whether you have crossed the $600 threshold in a calendar year. A straightforward spreadsheet works: contractor name, date paid, amount, and description of work. Your accounting software (QuickBooks, FreshBooks, Wave, or similar) can do this automatically if you log payments through it.

The $600 threshold is per contractor, per calendar year. If you pay one contractor $400 and another $300, neither hits $600 and you do not file a 1099 for either. If you pay one contractor $600 across multiple payments, you do file. If you pay a contractor $600 in December and another $600 in January of the next year, those are two separate years and you file two separate 1099s.

Some states also require you to report 1099 payments to the state tax authority, even if the federal threshold is not met. Check your state's rules, or ask your accountant.

Filing Form 1099-NEC with the IRS

By January 31 of the year after you paid the contractor, you must file a Form 1099-NEC with the IRS for each contractor who received $600 or more. You file this electronically through the IRS e-file system or by paper if you are filing fewer than a certain number of forms (the threshold changes yearly; check IRS.gov). Most accountants and bookkeepers handle this step, or your accounting software can generate the forms for you.

The 1099-NEC asks for the contractor's name, address, and tax ID; your name, address, and tax ID; and the total amount paid in box 1 (non-employee compensation). You will also file a summary form called Form 1096 that lists all the 1099s you are sending in that batch.

If you file late or with incorrect information, the IRS can fine you. The fine is small if the error is unintentional and you correct it within 30 days, but it is better to file on time and accurately. If you are unsure, have an accountant or tax software do it.

Sending the 1099-NEC to the contractor

You must send a copy of the 1099-NEC to the contractor by the same January 31 important date. This is Copy B of the form; the IRS gets Copy A. You can mail it or, in many cases, email it if the contractor has agreed to receive it electronically.

The contractor needs this form to report the income on their own tax return. If they do not receive it and the IRS has a record that you filed one, they may get a notice from the IRS asking why their reported income does not match. Sending it on time and keeping proof that you sent it protects both of you.

Include a note with the 1099-NEC reminding them that this is the income you reported to the IRS, so they should report at least this amount on their return (they may have other income from you that was not 1099-reported, or they may have deductions that reduce their taxable income).

What to do if you made a mistake

If you filed a 1099-NEC with the wrong amount or the contractor's wrong tax ID, you can file a corrected form called Form 1099-NEC (Corrected). You file it the same way as the original, and you send a corrected copy to the contractor as well. Do this as soon as you notice the error.

If you filed a 1099 for someone you should not have — for example, you later learned they were actually an employee, or you double-counted a payment — file a Form 1099-NEC (Corrected) with $0 in box 1 to void the original. This tells the IRS to disregard the first filing.

If you forgot to file a 1099 for a contractor who should have received one, file it as soon as you realize the mistake. The IRS prefers a late filing to no filing at all.

Contractors in other states or countries

You file a 1099-NEC for any contractor you paid $600 or more, regardless of where they live. If they live in another state, you still file the same federal form. Some states require additional state-level 1099 reporting; check your state's Department of Revenue website.

If you paid a contractor who is not a U.S. citizen or resident, the rules are more complex. You may need to withhold taxes under different rules (backup withholding), and you may file a different form (Form 1042-S instead of 1099-NEC). Consult a tax professional if you regularly pay non-residents.

Frequently Asked Questions

Do I have to pay a 1099 contractor differently than an employee?

No — the payment method is the same. The difference is that you do not withhold taxes, and you report the total paid on a 1099-NEC instead of a W-2. The contractor is responsible for paying their own income tax, Social Security, and Medicare.

What if a contractor does not give me a W-9?

You cannot legally pay them as a 1099 contractor without one. You would need to treat them as an employee, which means withholding taxes and filing a W-2 at year-end. Ask for the W-9 before the first payment and explain that you need it for your records.

Can I pay a contractor in cash?

Yes, but you still have to report it on a 1099-NEC if the total reaches $600 in the year. Keep a record of the date, amount, and what the work was for. Cash does not change your reporting obligation.

What happens if I do not file a 1099-NEC?

The IRS can fine you for each missing form. The fine is usually $50 to $280 per form depending on how late it is, but it adds up if you have multiple contractors. More importantly, if the contractor reports different income to the IRS than what you reported, it can trigger an audit for both of you.

When do I file the 1099-NEC — before or after I pay the contractor?

You file it after the year ends, by January 31 of the following year. You do not file it when you make the payment. Just keep records of all payments throughout the year, then file the 1099 once you know the total.