Yes, you can issue a 1099 to an undocumented worker, and in most cases you are required to. The IRS treats tax reporting and immigration status as separate matters: if you paid an independent contractor $2,000 or more during the 2026 tax year for services, you owe a Form 1099-NEC regardless of whether that person has work authorization. Filing the form handles your tax obligation. It does not resolve — and does not create — the separate question of whether you were legally allowed to engage the worker in the first place.
Tax Rules Do Not Turn on Immigration Status
The IRS wants to know about income. That interest exists independently of what Homeland Security thinks about who is working where. To make sure people without Social Security numbers can still meet federal tax obligations, the agency issues Individual Taxpayer Identification Numbers, which it states are “for federal tax purposes only” and do not authorize work in the United States or confer any Social Security benefit.1Internal Revenue Service. Individual Taxpayer Identification Number (ITIN) Reminders for Tax Professionals
Two assumptions get business owners into trouble here. The first is that issuing a 1099 to an unauthorized worker somehow legitimizes the arrangement. It doesn’t. The second is that refusing to file a 1099 protects the business from immigration scrutiny. It doesn’t do that either — it just adds a tax violation on top of whatever immigration exposure already exists.
When the 1099-NEC Obligation Kicks In
The One Big Beautiful Bill Act, signed July 4, 2025, raised the 1099-NEC reporting threshold from $600 to $2,000 for payments made after December 31, 2025.2Internal Revenue Service. Form 1099-NEC and Independent Contractors For the 2026 tax year, you must file a 1099-NEC for any contractor you paid $2,000 or more in total during the calendar year. Both the copy going to the IRS and the copy going to the contractor are due January 31 of the following year — January 31, 2027, for 2026 payments. There is no automatic extension.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
If you file ten or more information returns in a year, electronic filing is mandatory through the IRS Information Returns Intake System (IRIS).4Internal Revenue Service. E-File Information Returns With IRIS Collect a W-9 from every contractor at the start of the relationship. You rarely know in January whether year-end payments will cross $2,000, and scrambling for tax information in late January is how deadlines get missed.
Getting a Taxpayer ID From a Contractor Without a Social Security Number
The W-9 collects the name, address, and Taxpayer Identification Number you need to complete the 1099-NEC. For a contractor who lacks a Social Security number, the relevant TIN is an ITIN, a nine-digit number the IRS issues solely for tax filing.5Internal Revenue Service. Individual Taxpayer Identification Number (ITIN) An ITIN follows the same XXX-XX-XXXX format as a Social Security number but always begins with 9.1Internal Revenue Service. Individual Taxpayer Identification Number (ITIN) Reminders for Tax Professionals
Contractors without an ITIN apply using Form W-7, which requires original identification documents or certified copies from the issuing agency. Processing takes roughly seven weeks in normal periods and nine to eleven weeks between January 15 and April 30, when the IRS is buried in filing season.6Internal Revenue Service. Instructions for Form W-7 A contractor who starts work in October and doesn’t apply until December almost certainly will not have a number by January 31.
Backup Withholding When You Don’t Have a Valid TIN
If a contractor doesn’t provide a valid TIN — because they haven’t applied for an ITIN, refuse to share it, or give you a number the IRS rejects — you must withhold 24% of every payment and remit it to the IRS.7Internal Revenue Service. Backup Withholding Backup withholding is not optional, and if you should have withheld and didn’t, the IRS can pursue you for the unpaid amount plus penalties and interest.
You still file the 1099-NEC even without a TIN. Per IRS instructions, leave the recipient’s TIN box blank rather than entering zeros or a placeholder.8Internal Revenue Service. General Instructions for Certain Information Returns (2025) Report the total paid in Box 1 and the amount withheld in Box 4.
Where the Immigration Risk Actually Lives
Independent contractors are exempt from Form I-9. USCIS guidance confirms that a contractor — someone who controls how and when work gets done, supplies their own tools, and offers services to the public — does not complete an I-9. Some business owners read that and conclude there is no immigration exposure when hiring contractors. The same USCIS page says otherwise: “federal law prohibits individuals or businesses from contracting with an independent contractor knowing that the independent contractor is not authorized to work in the U.S.”9U.S. Citizenship and Immigration Services. Exceptions
The Immigration and Nationality Act itself extends this prohibition to arrangements structured through contracts or subcontracts, so putting “independent contractor” on the paperwork does not create a loophole.10Office of the Law Revision Counsel. 8 U.S. Code 1324a – Unlawful Employment of Aliens And “knowing” is broader than most people assume. Federal regulations define it to include constructive knowledge: facts and circumstances that would lead a reasonable person to know the worker is unauthorized.11eCFR. 8 CFR Part 274a – Control of Employment of Aliens That covers ignoring obvious errors in identification documents, keeping records that contradict the worker’s stated status, and deliberately avoiding information you’d otherwise have to act on.
Penalties Run on Both Tracks
The IRS and ICE enforce their own rules and levy their own fines. Filing a correct 1099 satisfies the tax side. It does nothing for the immigration side, and vice versa.
IRS Penalties for Information Return Failures
For returns due in 2026, the per-return penalty depends on how late you are:12Internal Revenue Service. Information Return Penalties
- Up to 30 days late: $60 per return.
- 31 days late through August 1: $130 per return.
- After August 1 or never filed: $340 per return.
- Intentional disregard: $680 per return, with no annual cap.
The intentional disregard tier is the dangerous one. If the IRS concludes you knew about the obligation and chose not to file, the annual cap that normally limits total exposure disappears.13Office of the Law Revision Counsel. 26 USC 6721 – Failure to File Correct Information Returns The same penalty schedule applies to filing a return with a missing or incorrect TIN, though reasonable-cause relief is available if you can show a genuine effort to obtain the number.
Immigration Penalties for Knowingly Using Unauthorized Labor
ICE can audit business records at any time through a Notice of Inspection covering payroll, I-9s, contractor arrangements, and licenses. Civil fines for knowingly using unauthorized workers escalate with each offense: roughly $700 to $5,700 per worker for a first violation, $5,700 to $14,300 for a second, and $8,600 to $28,600 for third or subsequent offenses. These figures adjust annually for inflation.14U.S. Immigration and Customs Enforcement. Form I-9 Inspection Under Immigration and Nationality Act 274A Where a fine lands within each range depends on the size of the business, good faith, seriousness of the violation, whether unauthorized workers were actually involved, and prior violation history.
When the government identifies a pattern or practice — repeated or systematic use of unauthorized labor rather than an isolated mistake — criminal prosecution enters the picture. Criminal penalties reach $3,000 per unauthorized worker, and the responsible person can face up to six months in prison for the pattern of conduct.15United States Department of Justice. Criminal Resource Manual 1908 – Unlawful Employment of Aliens Criminal Penalties
Don’t Use the Contractor Label as a Workaround
Classifying a worker as an independent contractor to skip the I-9 tends to backfire. If the IRS or the Department of Labor later determines the worker was actually an employee, you face back employment taxes, penalties for failing to withhold, and the immigration violation for not completing the I-9 you should have completed.
The Department of Labor uses an economic-reality test focused on how the relationship actually functions. Two factors carry the most weight: how much control you exercise over how the work gets done, and whether the worker has genuine opportunity for profit or loss based on their own initiative and investment. If you set schedules, provide tools, and the worker serves no one else, the contractor label on the paperwork will not survive scrutiny.
One narrow bit of relief exists. Section 530 of the Revenue Act of 1978 can protect a business from reclassification consequences, but only if it consistently filed 1099s for the worker, never treated anyone in a similar role as an employee, and had a reasonable basis for the contractor classification.16Internal Revenue Service. Worker Reclassification – Section 530 Relief Filing the 1099 is a prerequisite for that protection, which is one more reason to file even when the situation feels legally uncomfortable.
Records to Keep and for How Long
Hold W-9 forms, 1099-NEC filings, and records of any backup withholding for at least three years after filing the return they support. If you fail to report more than 25% of your gross income, the retention period extends to six years. If you never file at all, there is no expiration. Employment tax records carry a four-year retention requirement measured from the date the tax was due or paid, whichever is later — a figure that matters if a contractor is later reclassified as an employee.17Internal Revenue Service. How Long Should I Keep Records
Both IRS audits and ICE inspections can reach back years. A business that hands over a clean file of contractor payments, W-9s, and withholding decisions walks out of an audit with far less trouble than one reconstructing records from bank statements.