How Do I File a 1099 for Employees or Contractors?

To file a 1099 for contractors, collect a Form W-9 from each worker before you pay them, track cumulative payments through the year, and issue Form 1099-NEC to any contractor you paid $2,000 or more for services in tax year 2026, sending one copy to the contractor and one to the IRS by January 31. That’s the short version. The rest is knowing when the form doesn’t apply, which box to use, and how to file without triggering penalties.

One threshold question comes first: is the worker actually a contractor? If they’re on your payroll and you withhold taxes, they get a W-2, not a 1099. Filing the wrong form is the least of the problems that flow from misclassification.

Confirm the Worker Is a Contractor

The IRS weighs three categories of evidence: behavioral control, financial control, and the type of relationship.¹ Behavioral control asks whether you dictate how and when the work gets done. Financial control looks at who provides tools, whether the worker can take on other clients, and whether they have a chance of profit or loss on the job. The relationship factor considers whether there’s a written contract, whether you provide benefits like insurance or a pension, and whether the work is a core part of your business.

No single factor decides it. A freelance designer who sets their own hours, uses their own software, and serves multiple clients is almost certainly a contractor. Someone who works exclusively at your office on a schedule you set, using equipment you own, looks much more like an employee regardless of what your contract calls them. Misclassifying an employee as a contractor exposes you to liability for unpaid employment taxes, plus interest and penalties. The IRS can assess the employer’s share of Social Security and Medicare taxes you should have withheld, and potentially the income tax withholding you skipped.

If you genuinely aren’t sure, file Form SS-8 with the IRS for a formal determination. The process takes at least six months, so don’t wait until filing season. File your tax returns by their due dates while you wait for the ruling.²

The $2,000 Threshold for Tax Year 2026

The old $600 reporting threshold is gone. Legislation signed in 2025 raised it to $2,000 starting with tax year 2026, with inflation adjustments in later years.³ The threshold applies to cumulative payments to a single contractor over the calendar year, not to any individual check. Ten separate $200 payments to the same person hit the mark.

The requirement covers payments made in the course of your trade or business.⁴ Hire a plumber for $2,500 to fix a pipe at your home and no 1099 is needed. Hire that plumber for your business property and you owe a 1099-NEC. Tracking cumulative payments across the year prevents a January scramble through twelve months of bank statements.

Payments That Don’t Require a 1099-NEC

Three situations regularly trip up business owners.

Payments to corporations. You generally don’t file a 1099-NEC for payments to a C-corporation or S-corporation, including an LLC that elects corporate tax treatment. The major exception is attorneys: payments for legal services must be reported regardless of the law firm’s corporate structure.⁵
Payments made by credit card or payment app. If you pay through a credit card, PayPal, Venmo, Stripe, or a similar third-party processor, the payment network reports those transactions on Form 1099-K. Don’t also report them on a 1099-NEC — a duplicate report inflates the contractor’s apparent income.⁶
Payments below the threshold. If total payments to a contractor stay under $2,000 for the year, no 1099-NEC is required. The contractor still owes income tax on the money, but the reporting burden doesn’t fall on you.

The 1099-K threshold for third-party payment networks sits at $20,000 and more than 200 transactions per year after the same 2025 legislation restored those limits and scrapped the lower $600 threshold that had been scheduled under prior law.⁷ The practical rule: if you pay contractors by check, cash, or direct bank transfer, those go on your 1099-NEC. If you pay through a card or payment platform, the processor reports.

Collect a W-9 Before You Pay

Request a completed Form W-9 from every contractor before you issue the first payment. The W-9 gives you the contractor’s legal name, business entity type, and Taxpayer Identification Number, which is either a Social Security Number or an Employer Identification Number.⁸ Getting this up front avoids a chase in January when the contractor may be slow to respond.

If a contractor refuses to provide a TIN or gives you one that doesn’t match IRS records, you’re required to withhold 24% from their payments and send it to the IRS as backup withholding.⁹ Most contractors hand over a W-9 quickly once they realize the alternative. Keep the completed W-9 on file. You don’t send it to the IRS, but you need it if questions come up later.

Choosing Between Form 1099-NEC and Form 1099-MISC

For contractor pay, fees, and commissions, use Form 1099-NEC. The total goes in Box 1, Nonemployee Compensation.⁵ That covers the majority of what small businesses file.

Form 1099-MISC handles other payment categories: rent in Box 1, royalties in Box 2, other income in Box 3, and gross proceeds paid to an attorney in connection with legal settlements in Box 10.¹⁰ Legal fees for services to your business are nonemployee compensation and go on the NEC; settlement proceeds paid to an attorney on behalf of a client go on the MISC.

If you order paper forms, get them from the IRS or an authorized supplier. Copy A, the one sent to the IRS, is printed with special scannable ink, and the IRS rejects photocopies. Electronic filing sidesteps this entirely.

Filing Deadlines

Form 1099-NEC has the simplest deadline: January 31 for everything. Both the contractor’s copy and the IRS copy are due by January 31 of the year following the payment, on paper or electronic. There’s no extension for electronic filers on this form.⁵

Form 1099-MISC splits its deadlines. The contractor’s copy is due January 31. The IRS copy is due February 28 on paper, or March 31 electronically.¹¹ When any deadline falls on a weekend or federal holiday, the due date shifts to the next business day.

How to Submit Your Forms

If you file 10 or more information returns of any type in a calendar year, the IRS requires electronic filing. That count includes W-2s filed with the Social Security Administration, not just 1099s.¹² Even below the threshold, e-filing is faster, generates instant confirmation, and reduces processing errors.

The IRS Information Returns Intake System (IRIS) is the primary electronic filing portal. Through the IRIS Taxpayer Portal you can enter forms manually or upload a CSV, file up to 100 returns at a time, and download copies for your contractors.¹³ The older FIRE system is scheduled for retirement after the 2026 tax year filing season, and the IRS is directing users to IRIS.¹⁴

If you file on paper and submit fewer than 10 returns, you must include Form 1096 as a cover sheet. The 1096 summarizes the total number of 1099 forms in the batch and the combined dollar amount reported.¹⁵ You need a separate 1096 for each type of 1099 you send. Mail paper forms to the IRS Submission Processing Center designated for your geographic area, listed in the form instructions.

Penalties for Late or Incorrect Returns

Penalties scale with how late the correct return arrives. For tax year 2026:¹⁶

Filed within 30 days of the deadline: $60 per return.
Filed after 30 days but by August 1: $130 per return.
Filed after August 1 or not filed at all: $340 per return.
Intentional disregard: $680 per return, with no cap on the total.

The same amounts apply to furnishing incorrect payee statements. A wrong TIN, wrong dollar amount, or wrong name triggers the same tiers. Multiply by ten or twenty contractors and the totals add up quickly. Small businesses with gross receipts of $5 million or less qualify for reduced annual maximums, but the per-return amounts stay the same. Filing a correct return as soon as you realize you missed the deadline moves you into the lowest tier you still qualify for. Waiting for an IRS notice usually means paying the top rate.

Correcting a 1099 After Filing

The correction process depends on what you got wrong.¹¹

For a wrong dollar amount or an incorrect checkbox (a Type 1 error), file one corrected return. Prepare a new form with the right information, check the “CORRECTED” box at the top, and submit it with a new Form 1096 if filing on paper. Don’t include a copy of the original.

For a wrong TIN, wrong payee name, or a return filed under the wrong form type (a Type 2 error), you file twice. First, file a corrected return that mirrors the original but shows zero in all dollar amounts, with “CORRECTED” checked. Second, file a brand-new return with all the correct information as though it were an original, without checking “CORRECTED.” Write “Filed To Correct TIN,” “Filed To Correct Name,” or “Filed To Correct Return” in the bottom margin of the second form. This zeroes out the bad record and creates a clean replacement.

If you file electronically through IRIS, corrections follow the same logic through the portal interface. Catch errors early. A correction filed before the original deadline avoids penalties entirely.

State Filing Obligations

Many states require their own copy of the 1099 data for state income tax purposes. The IRS runs a Combined Federal/State Filing Program that forwards your 1099 information to participating state tax agencies when you e-file federally.¹⁷ If your state participates, you may not need to file separately. Some states don’t participate or have additional requirements beyond the federal data. Check with your state’s tax agency early in the filing season.

Keeping Your Records

Keep copies of every 1099 you file, the corresponding W-9s, proof of mailing or electronic submission confirmations, and records of all payments to contractors. The IRS recommends keeping general tax records for at least three years from the date you file the return.¹⁸ Employment tax records carry a four-year retention requirement, so if you have both W-2 workers and 1099 contractors, using the longer period for everything keeps it simple.¹⁹

1
Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
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Office of the Law Revision Counsel. 26 USC 6041 – Information at Source
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Office of the Law Revision Counsel. 26 USC 6041A – Returns Regarding Payments of Remuneration for Services and Direct Sales
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Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
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Internal Revenue Service. Form 1099-K FAQs – Third Party Filers of Form 1099-K
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Internal Revenue Service. One, Big, Beautiful Bill Provisions
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Internal Revenue Service. Instructions for the Requester of Form W-9 (03/2024)
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Internal Revenue Service. Backup Withholding
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Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information
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Internal Revenue Service. General Instructions for Certain Information Returns (2025)
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Internal Revenue Service. E-File Information Returns
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Internal Revenue Service. E-File Information Returns With IRIS
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Internal Revenue Service. Filing Information Returns Electronically (FIRE)
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Internal Revenue Service. About Form 1096, Annual Summary and Transmittal of U.S. Information Returns
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Internal Revenue Service. Information Return Penalties
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Internal Revenue Service. Combined Federal/State Filing (CFSF) Program State Coordinator Information FAQs
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Internal Revenue Service. How Long Should I Keep Records?
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Internal Revenue Service. Good Recordkeeping Year-Round Helps Taxpayers Avoid Tax Time Frustration