How Do You 1099 Someone? A Small Business Guide

There are two versions of this job.

In the first, it is January, you have a folder with a W-9 for every contractor you paid last year, and issuing the forms takes an afternoon. In the second, it is January, you have no W-9 for the designer who did three projects in the spring, you cannot remember her legal name, you have no idea what her taxpayer ID is, and she has not replied to your last two emails.

The difference between those two Januaries was decided in March. And that is the thing almost nobody tells you: the deadline that matters is not January 31. It is the day you write the first cheque. So this covers the seven steps properly, and it leads with the one that actually determines whether the other six are easy. It also covers two recent changes that most guides have not caught up with: the reporting threshold moved for the first time since the 1950s, and the IRS filing system is being retired. I build FirstHR, which is where contractor records and signed documents live. FirstHR does not file 1099s and this is not tax advice; for the filing itself, use the IRS or a tax professional.

What Does It Mean to 1099 Someone?

It means reporting to the IRS what you paid an independent contractor, on a form, once a year.

Two things worth being clear about, because they cause confusion.

You are not paying a tax. You are filing a report. The contractor pays their own tax on the income, and your obligation is simply to tell the IRS what you paid them.

And the income is taxable to them whether or not you issue the form. The 1099 is a reporting mechanism, not a switch that makes money taxable. A contractor who receives no form still owes tax on the payment, and a business that fails to issue one has not saved anybody anything. It has simply broken a rule.

The Deadline That Actually Matters

Every guide to this subject leads with January 31. It is the right date and it is the wrong emphasis, because by the time January arrives, the outcome has already been decided.

Look at the arc of that. The exact same request, made at four different moments, has four completely different success rates, and the difference is entirely about leverage. In March, they want to be paid, and a W-9 is the thing standing between them and the money. In January, they want nothing from you at all.

The Threshold Just Changed, and Half the Internet Has Not Noticed

Worth getting right, because it is the number everybody looks up first and it is different from what almost every article says.

Per IRS Publication 1099, for tax years beginning after 2025 the minimum threshold for reporting certain payments on information returns, and for performing backup withholding on those payments, increased to $2,000, adjusted for inflation beginning in calendar year 2027. The previous figure was $600.

Two consequences worth understanding.

For a business with several small freelancers, this genuinely reduces the number of forms you file. A designer paid $1,400 across the year is now below the line. That is a real reduction in administrative work and it is welcome.

And state rules do not necessarily follow. Several states set their own thresholds, and some of them have not moved. A payment that generates no federal form may still generate a state one, and the federal relief does not automatically travel.

Who Actually Gets One

Not everybody you paid. The list is narrower than people assume in one direction and wider in another.

The attorney exception is worth repeating because it is genuinely counterintuitive. Corporations are generally exempt from 1099 reporting. Law firms are generally corporations. Law firms get a 1099 anyway. If you paid a lawyer for business services, issue the form.

The payment-card exception works in the opposite direction and catches people the other way. If you paid a contractor with a business credit card or through a third-party payment network, the processor reports those payments, and you should not report them again. Which means a contractor you paid partly by bank transfer and partly by card needs careful handling, and the amount on the form is not simply everything you gave them.

The Seven Steps

The whole process, and then each step in detail.

Notice the shape. Six of these steps happen in a single week in January and are essentially clerical. One of them happens months earlier, is trivially easy at the time, and is the only one that can go irrecoverably wrong.

Step 1: Get the W-9 Before You Pay Anybody

This is the article. Everything else is administration.

Form W-9 gives you the contractor's legal name, business name if they have one, address, taxpayer identification number, and their tax classification, which tells you whether they are a sole proprietor, an LLC, a partnership, or a corporation. That last field is what tells you whether they need a 1099 at all.

It is a one-page form. It takes them a minute and a half. And the entire difficulty of the January exercise is determined by whether you have it.

The backup withholding row deserves particular attention, because the obligation sits somewhere counterintuitive. If a contractor does not give you a correct taxpayer ID, you are required to begin withholding at 24 percent and remit it. Not them. You.

Which produces the specific nightmare in that last row: you already paid them in full, months ago, because nobody told you that you were supposed to be withholding. The money is gone. The obligation is not.

Step 2: Verify the TIN

Quick, free, and skipped by almost everybody.

A name and taxpayer ID that do not match generates an IRS notice, and an IRS notice generates work: you have to solicit a corrected W-9, and potentially start backup withholding, and the whole thing becomes a small ongoing administrative project.

The IRS offers free TIN matching through e-Services, which checks the name and number against IRS records before you file. It takes minutes, it prevents a category of problem entirely, and it is one of the few genuinely free things in tax compliance.

Do it when the W-9 arrives, not in January. You have the information already, and finding a mismatch in March means you can ask them to fix it while you still have their attention.

Steps 3 to 5: Track, Check the Threshold, Fill the Form

The clerical middle. None of it is hard.

Track what you paid, continuously

Not in January. All year. The reason is simple: in January you will be doing this for every contractor at once, under a deadline, and reconstructing twelve months of payments from bank statements and memory is exactly the kind of task that produces errors.

And you need it split by payment method, because card payments are excluded. A running total per contractor, updated when you pay them, costs nothing and removes the entire problem.

Work out who crosses the line

Anyone you paid at or above the threshold for services during the calendar year, minus the corporations, minus the card payments, plus the attorneys regardless. That is the list.

Complete Form 1099-NEC

Your name, address, and taxpayer ID. Their name, address, and taxpayer ID, taken from the W-9. The total nonemployee compensation you paid them. That is essentially the form. Per the IRS instructions for Form 1099-NEC, it is used to report nonemployee compensation, and the mechanics are straightforward when you have the W-9.

Which is, once again, the point. With the W-9, this step is five minutes. Without it, this step is impossible.

Step 6: Send the 1099 to the Contractor

Copy B goes to them, by January 31. Paper by mail is always acceptable and always safe.

Electronic delivery is permitted, and it is where people get sloppy. You cannot simply email a PDF because it is more convenient for you. Electronic delivery requires the recipient's prior affirmative consent, and that consent has specific requirements: you have to tell them how to withdraw it, how to request a paper copy instead, and what hardware or software they need to access the document.

Step 7: File It With the IRS

Also by January 31. That is the part that surprises people: for Form 1099-NEC, the recipient copy and the IRS filing are due on the same date. There is no later deadline for the government copy.

Whether you can file on paper depends on volume. The e-file threshold is ten information returns, aggregated across all types. Which is a lower bar than it sounds: your W-2s count toward it. A business with six employees and five contractors is already over.

Per the IRS, IRIS is the system to use, and it is free. The IRIS e-filing page is the place to start, and for a small business filing a handful of forms the taxpayer portal is enough: you key them in or upload a spreadsheet, and you are done.

If you do file on paper, note that Copy A has to be the official scannable red-ink form. You cannot print it off a website and post it. And it goes with Form 1096, the transmittal summary, which is not required when you file electronically.

What It Costs to Get This Wrong

The penalties are per form, they escalate with time, and there are two of them.

Reasonable cause relief exists, and it is not automatic. It requires showing that you acted responsibly both before and after the failure, which in practice means demonstrating that you had a process, tried to comply, and fixed the problem when you found it. An employer who never collected W-9s and never tracked payments will find that argument difficult to make, because the evidence of acting responsibly beforehand does not exist.

The Bigger Question Underneath All of This

Everything above assumes the person is genuinely a contractor. If they are not, none of it helps you, and the 1099 you carefully issued becomes evidence.

Because a worker you treat as a contractor, who is in fact an employee under the law, is a misclassification. And the consequences of that dwarf anything in this article: unpaid overtime, unpaid employer payroll taxes, penalties, and a wage claim with liquidated damages attached.

Worse, the 1099 itself is the document that proves how you treated them. You issued it. It has your name on it. And it says, in effect, I decided this person was not an employee, which is precisely the decision under examination.

The test turns on the actual relationship rather than what you called it: who controls how the work is done, who bears the financial risk, and what the nature of the relationship is. If you set their hours, supervise their work, provide their tools, and they work only for you, then no amount of correct 1099 paperwork makes them a contractor. The full picture is in the guides to independent contractors and employee versus contractor.

Get the classification right first. Then the 1099 is just paperwork. Get it wrong, and the 1099 is a signed admission of the thing you are being accused of, and the unpaid wages become back pay.

Common Mistakes

These recur, and the first one causes every other problem in this article.

Frequently Asked Questions