A Business Owner’s Guide to Managing 1099s

If you work with freelancers, vendors, or independent contractors, sending out 1099s isn’t just a good business practice—it’s a legal requirement. And if you’ve ever found yourself scrambling in January trying to figure out who needs one (and what you even paid them), you’re not alone.

Managing 1099s doesn’t have to be stressful or confusing. With the right systems in place, you can stay organized all year long, avoid Internal Revenue Service (IRS) penalties, and make tax season way less hectic.

In this guide, we’ll walk you through the types of 1099s you might need to issue, how to properly pay contractors, the differences between employees and independent contractors, and smart steps to track payments and collect W-9s so you’re ready when deadlines roll around.


What is a 1099 form?

A 1099 isn't one form, but a series of forms used to report different types of payments.

The IRS has more than a dozen versions of Form 1099, but the ones you'll likely encounter while running your trade or business include:

Throughout the rest of this article, we'll focus on Form 1099-NEC, since that's the one you're most likely to need to issue.

Who needs Form 1099-NEC?

Before you send Form 1099-NEC, make sure you correctly classify the individual or business as an independent contractor. Independent contractors are self-employed individuals who control how and when they do their work. On the other hand, employees are subject to your control over the work product and how they complete it.

Misclassifying employees as independent contractors can lead to back taxes, interest, and penalties, so it’s worth reviewing IRS guidelines or consulting a professional if you have questions.

Key differences:

  • Contractors submit invoices and provide their own tools. They're not on payroll, and you don't withhold federal income taxes or payroll taxes from their payments.

  • Employees receive wages via payroll, and you withhold income tax, Social Security, and Medicare taxes.

You can read more about classifying employees in our guide to Employee vs. Contractor: What Employers Need to Know.

How to Pay 1099 Contractors

Paying contractors is generally straightforward because you don't have to worry about calculating and withholding payroll taxes and remitting them to the federal and state governments.

But doing it wrong can mean hefty penalties, so managing the process is essential.

Collect a W-9 form before you pay them

Before paying any contractor, request a completed Form W-9. This form provides the contractor’s name, business name (if applicable), tax classification, and Taxpayer Identification Number (TIN). You’ll need that info to fill out the 1099-NEC.

You don't need to send W-9s to the IRS. Instead, store them securely so you have the information to complete Form 1099-NEC. Make sure you get a new W-9 if a contractor’s information changes.

Pay your contractor

If you pay the contractor via cash payments, check, ACH, or other direct methods, they're reportable on Form 1099-NEC if they meet the $600 threshold.

This is where it gets tricky, because you don't have to report payments made through credit cards or third-party payment networks like PayPal or Venmo for Business. The payment processor reports those on a 1099-K.

Track payments made throughout the year

Track payments you make to independent contractors, freelancers and vendors throughout the year. If you use various payment methods, make sure you track payments by method, since only those payments made by cash, check, or bank transfer need to go on the 1099.

Accounting software makes tracking payments easy. Many platforms will even flag contractors as you pay them and include 1099 form filing features.

Issue a 1099-NEC the following year

You must issue a 1099-NEC to any non-employee who received $600 or more in a calendar year for services. Send a copy to the contractor by January 31 and file a copy with the IRS by the same date, either electronically or on paper.

Missing that deadline can lead to penalties ranging from $60 to $330 per form, depending on how late you are. If you intentionally disregard the requirement, the minimum penalty is $660 per form, with no maximum.

1099 Form electronic filing requirements

You may have to file them electronically if you send enough informational returns, like W-2s and 1099 forms. Starting in 2024, the IRS lowered the e-filing threshold from 250 forms to just 10.

For example, say for the 2025 tax year, you have

  • Five employees who receive W-2s at year end

  • One attorney who receives a Form 1099-MISC for attorney fees

  • One landlord who receives a Form 1099-MISC for the rent you pay

  • Three independent contractors who need Form 1099-NEC

Because you have 10 informational returns, you must file them electronically using the IRS’s Information Returns Intake System (IRIS) or through an authorized e-file provider, like your accountant or accounting software provider.

E-filing is faster, more secure, and you get confirmation that the IRS received your submission right away. So it’s a good idea even if you’re under the threshold.

Push "the easy button" this tax year

Reporting non-employee compensation and other payments doesn’t have to be a last-minute scramble. With a bit of preparation—collecting W-9s early, tracking payments by method, and planning ahead for e-filing—you can make tax time a whole lot smoother.

If you need help tracking your numbers throughout the year, let Slate help you stay organized, so issuing 1099s isn’t stressful in January. From clean books to clear records, we’ve got your back.

Advisory Services, Business TaxesJustin Thomsen1099s, independent contractor vs employee