Hi there, Suzannek.
The E-file and upgrade prompt appears if your current QuickBooks Online (QBO) plan does not include the subscription needed for e-filing 1099s. To proceed with the process, you'll need to upgrade to either Payroll Core, Premium, or Elite, or subscribe to Contractor Payments, which includes this feature.
Regarding the state filing, QuickBooks supports e-filing of 1099 forms for the federal government. However, some states have additional filing requirements. In these situations, you will need to file them manually.
To check whether QuickBooks supports state e-filing for your location and learn more about state-specific requirements, refer to this article: File your state 1099 forms.
If you have any further questions or need additional assistance, don't hesitate to ask.
