How to Pay a 1099 Contractor: Step-by-Step

What you need to do before paying a 1099 contractor

Before you send any money to a 1099 contractor, you need their W-9 form on file. This is a one-page IRS document where they provide their name, address, and tax identification number (either their Social Security number or an Employer Identification Number). You cannot legally pay them without it, and you'll need it later to file your own tax forms.

Ask the contractor to fill out and sign a W-9 before work begins. They can read it from the IRS website (irs.gov, form W-9) or you can provide one. Keep it in your records — you don't send it to the IRS, but you must have it if the IRS asks. If a contractor refuses to provide a W-9, you cannot pay them as a 1099 contractor.

You should also have a written agreement or contract that spells out the work, the rate, and when payment is due. This protects both of you and makes the 1099 relationship clear to the IRS.

Key Takeaways

• Collect a signed W-9 form from the contractor before you pay them anything, and keep it in your records.
• You can pay a 1099 contractor by check, bank transfer, credit card, or payment platform — there is no single required method.
• You must track what you paid each contractor and issue them a 1099-NEC form by January 31 if you paid them $600 or more in a calendar year.
• The contractor is responsible for their own taxes, but you are responsible for reporting the payment to the IRS on the correct form.
• Keep records of every payment, including the date, amount, and what work it was for, for at least three years.

How to send the payment

There is no single way you must pay a 1099 contractor. You can write a check, transfer money from your bank account, use a payment app like PayPal or Stripe, or pay by credit card — whatever you and the contractor agree on. The method does not matter to the IRS, only that you have a record of it.

Whatever method you choose, keep proof. If you write a check, keep the cancelled check or a photo of it. If you transfer money, save the confirmation email or screenshot. If you use a payment platform, read the transaction history. You will need these records to prove what you paid and when, both for your own tax return and if you ever need to show the IRS documentation.

Make sure the payment goes to the person or business name that matches the W-9 they gave you. If they provided a business name and EIN, pay the business. If they provided their Social Security number, pay them as an individual. Mismatches can cause problems when you file your 1099-NEC.

Tracking payments and the $600 threshold

You need to track the total amount you pay each contractor in a calendar year. If you pay any single contractor $600 or more from January 1 through December 31, you must issue them a 1099-NEC form (Miscellaneous Income) and file a copy with the IRS.

This threshold applies to each contractor separately. If you pay one contractor $400 and another $500, you do not file 1099s for either. If you pay one contractor $600 and another $700, you file 1099s for both. Keep a running total as you pay throughout the year so you know which contractors will need a 1099.

Some types of payments do not count toward the $600 threshold — for example, payments to corporations (as opposed to sole proprietors or partnerships) and payments for certain professional services. If you are unsure whether a payment counts, the IRS website has a detailed list, or you can ask a tax professional.

Issuing the 1099-NEC form

By January 31 of the following year, you must send a 1099-NEC to any contractor you paid $600 or more. The form shows their name, address, tax ID, and the total amount you paid them. You fill it out, sign it, and give a copy to the contractor. You also file a copy with the IRS and keep a copy for your records.

You can prepare the 1099-NEC yourself using IRS Form 1099-NEC (available on irs.gov), or you can use tax software or hire a bookkeeper or accountant to do it. If you have only one or two contractors, doing it yourself is straightforward. If you have many, software or professional help saves time and reduces mistakes.

The contractor uses the 1099-NEC you send them to report the income on their own tax return. If you do not send them a 1099-NEC by January 31, they may not report the income correctly, and the IRS will notice the mismatch when they file.

What to do if you paid a contractor less than $600

If you paid a contractor less than $600 in a year, you do not file a 1099-NEC with the IRS. However, you should still keep records of the payment for your own tax return and your business records. You can deduct the expense on your tax return even without a 1099.

The contractor is still responsible for reporting the income to the IRS on their own return, whether or not you issue a 1099. Many contractors track their own income and report it correctly. Some do not. Either way, your obligation is only to file a 1099 if the amount is $600 or more.

Record-keeping and documentation

Keep records of every payment to every contractor for at least three years. This includes the contractor's name, the date of payment, the amount, what work it was for, and proof of payment (a cancelled check, bank statement, or payment platform receipt). If the IRS ever audits you, these records are your proof that the payment happened and what it was for.

Organize your records by contractor and by year. A straightforward spreadsheet works well: columns for contractor name, date, amount, description of work, and payment method. At the end of the year, you can total each contractor's payments and see when ready who needs a 1099.

If you use accounting software or hire a bookkeeper, they can maintain these records for you. Either way, the records belong to you, and you are responsible for having them if needed.

Common mistakes to avoid

The most common mistake is not collecting a W-9 before paying someone. Without it, you cannot file a 1099-NEC even if you should, and the IRS may penalize you. Always get the W-9 first.

Another mistake is misreporting the amount on the 1099-NEC. If you paid someone $650 but report $600 on the form, the contractor's records will not match the IRS's records, and both of you may face questions. Use your payment records to get the amount right.

A third mistake is missing the January 31 important date. If you file a 1099-NEC after January 31, the IRS may impose a penalty. Mark the important date on your calendar in early January and file by the 31st.

Frequently Asked Questions

Do I have to use a specific payment method?

No. You can pay by check, bank transfer, payment app, or any other method you and the contractor agree on. The IRS does not care how the money moves, only that you have a record of it and report it correctly on a 1099-NEC if the amount is $600 or more.

What if the contractor does not provide a W-9?

You cannot pay them as a 1099 contractor. You can ask them to fill one out, explain that you need it for your records, or decline to hire them. If you pay someone without a W-9 on file, you have no documentation of their tax ID, which creates problems when you try to file a 1099-NEC.

Can I pay a 1099 contractor with a credit card?

Yes, but be aware that credit card payments may trigger separate reporting requirements. If you pay a contractor $20,000 or more by credit card in a year, the credit card company may file a Form 1099-K with the IRS. You should still file a 1099-NEC if the amount is $600 or more. Consult a tax professional if you regularly pay contractors by credit card.

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

The IRS may impose a penalty, usually $50 to $270 per missing form depending on how late it is. More importantly, if the contractor does not report the income and the IRS catches the discrepancy, both of you may face audit or additional tax bills. Filing on time protects both parties.

Do I need to file a 1099-NEC for a corporation?

No. If you paid a business that is registered as a corporation (C-corp or S-corp), you do not file a 1099-NEC, even if you paid them $600 or more. You only file 1099-NEC for sole proprietors, partnerships, and LLCs. The W-9 will show the business structure, so you will know which form to file.