How to fill out a 1099 form: Step-by-step instructions and tips

Who gets a 1099 form?

Individuals or independent contractors who earn $600 or more in nonemployment income within a calendar year must receive a Form 1099. The IRS considers someone an independent contractor if they are self-employed or if a business contracts them to perform work as a nonemployee. 

The IRS provides guidelines to determine if a particular worker is an independent contractor or an employee—an important distinction because companies don’t have to withhold income taxes or FICA taxes (Medicare and Social Security) from an independent contractor’s payments.

To make the determination, business owners should consider the following three criteria, which address the degree of control they have over the worker:

1. Behavioral control: Does your small business have a right to control what the worker does and how they perform their job?
2. Financial control: Does your business have a say in the material aspects of a worker’s job? In other words, do you decide which expenses get reimbursed or who provides the necessary tools and supplies?
3. Contractual relationship: Is there a written contract? Are benefits such as pension, insurance, or vacation days a part of that contractual obligation?

Filers who work as independent contractors may request tax withholdings, but not all 1099 forms require this process.

Filling out a 1099 form: Step-by-step instructions 

Once you’ve determined who your independent contractors are and you feel confident your books are in order, you can begin completing a 1099. We’ll walk you through this step by step so you can ensure proper taxation.

Step 1: Understand the 1099 form

Businesses must provide a 1099-NEC to each contractor who is paid $600 or more in a calendar year. Independent contractors must include all payments on a tax return, including payments that total less than $600. Note also that nonemployee compensation includes payments to individuals and partnerships.

A number of payments do not require a 1099-NEC, including:

• Payments to a corporation, including a limited liability company that is treated as a C corporation or an S corporation for tax purposes.
• Business travel allowances paid to employees.
• Payments for merchandise, freight, or storage.

Payments through third-party networks—including credit card payments—are reported on Form 1099-K. If, for example, a business pays an independent contractor through PayPal, the contractor may receive a Form 1099-K from PayPal for those direct sales. Issuing a 1099-K depends on the number of transactions and the total dollar amount paid.

Use accounting software to fill out a Form 1099-NEC for each contractor and consult with a certified public accountant (CPA) regarding the 1099 forms your business must provide.

QuickBooks offers 1099 e-filing services with QuickBooks Payroll1 and QuickBooks Contractor Payments. When you use QuickBooks Payroll software or Contractor Payments, Your 1099s will be automatically generated and e-filed for you, saving time and helping you prepare for tax season. You can file unlimited 1099s, including 1099-NEC and 1099-MISC2.

Step 2: Fill out a 1099 form

Make sure you have all necessary documents for each independent contractor you employ. Each independent contractor should have filled out a W-9 before providing any services. These provide you with the following information useful for filling out 1099s.

Here are the instructions for how to complete a 1099-NEC, line by line:

• Box 1: Nonemployee compensation: Post the nonemployee compensation and 
• Payer’s TIN: List your company’s taxpayer identification number (TIN) as Payer’s TIN. 
• Payer’s information: List your business’s name and address in the top left section of the form.
• Recipient’s TIN: List the independent contractor’s TIN.
• Recipient’s name: List the independent contractor’s name. 
• Street address: List the independent contractor’s address. 
• Box 4: Federal income tax withheld: Record any federal and state income tax withholdings, if applicable.

Finally, you’ll see a section to report state income earned and your company’s state tax identification number. The IRS does not require this information, but many businesses include it to make state income tax filings easier for the contractor.

Step 3: Submit the 1099 form

When you produce a 1099-NEC, you provide copies of the form to different recipients:

• Submit Copy A to the IRS with Form 1096, which reports all 1099 forms issued to contractors, and the total dollar amount of payments.
• Send Copy 1 to your state’s Department of Revenue.
• Provide Copy B to the recipient (the contractor).
• Keep Copy C for your records; this documents the wage expense you post on your business tax return.

The due date for producing 1099-NEC forms is on or before Jan. 31st. You must provide a Form 1099-NEC to each contractor and to the IRS by that date. Many businesses e-file, and e-filing makes it easier to meet the filing deadline.

It’s also important to check state requirements. Certain states require businesses to file 1099 forms with them, so check with your CPA if you’re unsure.

How to file a 1099 form online

The easiest way to fill a 1099 form is electronically, and you can do so using the IRS Filing a Return Electronically (FIRE) system. Before doing so, you need to request a Transmitter Control Code (TCC) and submit it at least 30 days before the tax deadline for your 1099. You can request this by filling out a Form 4419.

From there, the IRS will alert you with your TCC, and you can proceed with your FIRE account.

How contractors use Form 1099-NEC

Most freelancers and independent contractors use Schedule C, Profit or Loss From Business, to report self-employment income on their personal tax returns. 

Here is the process for reporting income earned on a Form 1099-NEC:

• Part 1 of Schedule C reports income earned by the contractor. The total amount earned on all 1099 forms is posted to line 1, gross receipts or sales.
• The subcontractor’s net profit or loss on Schedule C is posted to Form 1040, Schedule 1, as additional income.
• The total adjustments to income on Schedule 1 are posted as income on Form 1040, line 10a.

If any federal income taxes were withheld on Form 1099, that total is also reported on Form 1040.

Find peace of mind come tax time

Preparing and filing 1099 forms can be tedious and time-consuming. While it may seem straightforward, the process can quickly become a headache if you employ a number of contractors.

Use this guide on how to fill out a 1099 form for the process, but if you get overwhelmed, look for help elsewhere. A payroll software solution for your small business can help automate the process and save you some time and frustration. Hiring an accountant or tax preparer can also help you manage the process.

Disclaimers

*QuickBooks Live Tax, powered by TurboTax, is an integrated service available with a QuickBooks Online subscription. Additional terms, conditions and limitations apply. Pay when you file.

**QuickBooks Live Bookkeeping Guided Setup is a one-time virtual session with a Live Bookkeeper. Available to new QuickBooks Online Simple Start, Essentials, Plus, or Advanced subscribers who are within their first 30 days of their subscription. The QuickBooks Live Setup service includes instructions on how to set up your chart of accounts, customize invoices, set up reminders, and connect bank accounts and credit cards. QuickBooks Live Setup does not include Payroll setup or services. Your bookkeeper will only guide you through the setup of your QuickBooks Online account, and cannot set it up on your behalf.

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QuickBook Online Payroll & Contractor Payments: Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services, subject to eligibility criteria, credit and application approval. For more information about Intuit Payments Inc.’s money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/.

1. Additional fees apply.

2. Unlimited 1099s: 1099s are e-filed only for the current filing year and for payments recorded in the system. Excludes amendment.