How to Issue a 1099 (With Steps & Deadlines)

Taxes are a common arch-nemesis of small business owners. As your business grows and you hire more people, your tax situation becomes more complex. That’s especially true if you’re using independent contractors throughout the year.

Contractors aren’t paid the same way as employees, and they’re taxed differently, too. Rather than report their wages on W-2 forms, contractors must file 1099 forms, which they receive from the business. (Self-employed people, like freelance writers or designers, might also have to file 1099s if they don’t pay themselves a salary through a registered business.)

Issuing a 1099 form is essential for reporting non-employee income to the IRS and helps contractors accurately file their own tax returns. This article will provide a simple, step-by-step guide on how to issue a 1099 form.

Who Needs a 1099?

Generally, you must issue a 1099 to anyone you paid at least $600 for services during the tax year, provided they’re not a W-2 employee. This rule applies to a wide range of independent contractors, including freelancers, consultants, attorneys, and other self-employed individuals.

Usually, you do not need to send a 1099 to a corporation, although there are certain exceptions for legal and medical services.

Which Form Should You Use?

1099s can be a bit confusing because there are multiple types of 1099s. Small business owners typically must determine when it’s appropriate to file a 1099-NEC vs. 1099-MISC.

1099-NEC (Nonemployee Compensation)

Since 2020, the 1099-NEC has been the primary form for reporting payments to independent contractors for services rendered. If you paid someone for work they performed, this is the form you’ll almost always need.

1099-MISC (Miscellaneous Information)

The 1099-MISC is still in use but is now reserved for other types of income. This includes payments for rent, awards, prizes, and royalty payments.

The key distinction is simple: If the payment was for a “service,” it’s a 1099-NEC. If it were for something else, it’s a 1099-MISC.

Step-by-Step Guide to Issuing a 1099

Issuing a 1099 is, fortunately, pretty simple. Here’s a step-by-step guide:

Step 1: Get a W-9 from the Contractor

A W-9 form provides a contractor’s name, address, and Taxpayer Identification Number (TIN). Basically, everything you need to report to the IRS. It’s best to request this form from them before you make your first payment to them so you can avoid any tax season scrambling to get your forms out on time.

Step 2: Track All Payments

Throughout the year, you’ll need to track all payments you make to each contractor accurately. You can do this using your online payroll provider, an accounting software, or a spreadsheet if you’re a little more old school. The most important thing is that you do it accurately, because you’ll need to report the correct amount at the end of the year.

Step 3: Fill Out the Form

At the end of the calendar year, fill out the 1099-NEC form with all the necessary information, including:

• Your business’s information (payer)
• Contractor’s information from their W-9 form (recipient)
• Box 1 – Nonemployee compensation

Step 4: Distribute the Form

When the form’s completed, you must provide a copy to the contractor, known as Copy B. They’ll need it for their own tax return. You keep Copy A for your records.

Step 5: File with the IRS

Finally, you’ll need to file the form along with your business tax return. You’ll use Copy A of the 1099-NEC form. If you’re filing 10 or more forms, the IRS requires you to file electronically. If you’re filing by mail, you’ll need to include a 1096 Transmittal Form that summarizes your 1099 forms.

Key Deadlines and Penalties

There are a few key things to keep in mind:

• Deadline: The deadline to send the 1099-NEC to your contractors is generally January 31 of the year following the payment. It’s also the deadline to file the 1099-NEC with the IRS.
• Penalties: Late or incorrect filings may result in penalties, which can range from minor fees to significant fees or even potentially jail time, depending on the length of the delay and the reason for the late filing.