Handling 1099 forms for your business requires careful compliance with IRS regulations to report payments made to independent contractors and ensure proper tax filing. Below is a step-by-step guide to managing 1099s as a business owner.

How did we come to writing this article btw?

As business owners, we had 1099 questions:

How do you handle 1099s as a business owner?

What steps do I need to complete to be in compliance with the IRS?

What am I required to do, provide, submit?

What are the deadlines?

So, we wanted to understand exactly when 1099 forms are required and what we needed to do to handle tax requirements for all 1099 contractors we paid $600 or more to within the given year. That’s how we ended up with step-by-step instructions, including how to fill out any forms and e-file, and how to send the completed 1099 form to the contractor.

This information is useful if you hire contractors or freelancers, like marketing professionals, graphic designers, consultants, virtual assistants, and other part-timey / service-oriented roles that don’t match the definition of “employee” or W2 Form.

Step 1: Determine Who Requires a 1099-NEC

1. Identify Eligible Contractors:
   • Issue Form 1099-NEC to any contractor (individuals, partnerships, LLCs taxed as individuals) you paid $600 or more during the calendar year for services.
   • Exceptions:
     • Corporations (C-corps and S-corps) are typically exempt unless they are attorneys or provide medical services.
     • Payments made via credit cards or third-party platforms (e.g., PayPal) do not require a 1099-NEC; the payment processor issues a 1099-K.
2. Collect W-9 Forms:
   • Request and collect a Form W-9 from all contractors before making payments.
   • Verify that the W-9 includes their legal name, business name (if applicable), Taxpayer Identification Number (TIN), and address.

Step 2: Record Payments

1. Track Payments Throughout the Year:
   • Use accounting software (e.g., QuickBooks, Xero) or maintain detailed records of payments made to contractors.
   • Exclude payments made via platforms like PayPal or credit cards (these are reported on 1099-Ks by the platform).
2. Verify Total Payments:
   • Ensure the total payments for each contractor meet or exceed $600.

Step 3: Prepare Form 1099-NEC

1. Obtain the Form:
   • Use IRS-authorized tools to prepare the 1099-NEC (e.g., QuickBooks, Tax1099.com) or purchase official forms from the IRS or office supply stores. Here is the IRS form as of 2024. This IRS page will have the latest form.
2. Fill Out Form 1099-NEC:
   • Box 1: Enter the total amount paid to the contractor during the year.
   • Payer’s Information: Enter your business name, address, and EIN.
   • Recipient’s Information: Enter the contractor’s name, address, and TIN from their W-9.
   • Boxes 4-7: Leave blank unless applicable to backup withholding or other specific requirements.
   • Account Number: Pull the number provided when completing your e-file to the IRS or set a custom number.

Step 4: File Form 1099-NEC with the IRS

1. Obtain Form 1096 (if Filing by Mail):
   • Use Form 1096 to summarize all 1099-NEC forms you are submitting by mail.
2. File Electronically (Recommended):
   • Use an IRS-approved e-filing service (e.g. Tax1099.com, QuickBooks, or others) to submit forms electronically.
   • Most e-filing services guide you through entering contractor information and submitting directly to the IRS.
3. Deadlines for Filing:
   • To Contractors: Send the 1099-NEC form to contractors by January 31 of the following year.
   • To the IRS:
     • Electronic Filing: Due by January 31.
     • Paper Filing: Must be postmarked by January 31.

Step 5: Distribute 1099-NEC to Contractors

1. Provide Copies:
   • Send Copy B of the 1099-NEC to each contractor by January 31.
     • We send pages 3–6: Copy 1, Copy B, Instructions for Recipient, and Copy 2
   • Delivery Options:
     • Mail a physical copy to the contractor’s address.
     • Provide electronic copies if the contractor consents.
2. Keep Records:
   • Retain copies of all 1099 forms and proof of submission for at least three years.

Step 6: Handle Corrections

1. Review for Errors:
   • If there’s a mistake on a 1099-NEC, correct it using a corrected 1099-NEC form and resubmit it to the contractor and the IRS.
   • Use “X” in the corrected box on the form and refile electronically or by mail.

Step 7: Penalties for Non-Compliance

1. Late Filing Penalties:
   • $50 per form if filed within 30 days of the deadline.
   • Up to $290 per form for longer delays, with a maximum penalty of $1,177,500 per year for small businesses.
2. Backup Withholding:
   • If a contractor fails to provide a valid TIN, withhold 24% from their payments and report this on the 1099-NEC.

Tools and Resources

IRS Publications:

• Am I required to file a Form 1099 or other information return? Review article on e-filing and reporting requirements.
• Check the IRS instructions for completing 1099 forms.

Software for E-Filing:

• We use Tax1099.com to e-file our 1099 forms to the IRS. Other options include Track1099, QuickBooks and more. Tax1099 ($2.90/form) and Track1099 ($2.99/form) are janky, but cheap, while Quickbooks is the best experience bar none, but requires a monthly subscription of $15/month to automate the 1099 process, including filing with the IRS and distributing forms to contractors. Tax professionals cost around $100 for preparation and $15–$20 per form.
• You don’t need to apply for a Transmitter Control Code (TCC) if you are submitting 1099 forms through an IRS-authorized e-filing platform like Tax1099.com—they have their own TCCs and act as the transmitter on your behalf.

Need help? If you have questions about information reporting, you may call 866-455-7438 (toll-free) or 304-263-8700 (not toll-free). Persons with a hearing or speech disability with access to TTY/TDD equipment can call 304-579-4827 (not toll-free). The IRS welcomes calls via your choice of relay. Deaf or hard of hearing taxpayers using a relay service may call any of our toll-free numbers.

The information in this article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.