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taxes

Form 1099: Why it’s important and how to pay 1099 contractors

A 1099 is a tax form that is used to record nonemployee income. There are several types of 1099s used for different purposes, and Form 1099-MISC is often considered a catchall for income that doesn’t fit into other categories. However, the most common use of Form 1099 is reporting independent contractor payments for services provided to a business.


In this post, we’ll cover what a 1099 is, the types of 1099s, who should receive a 1099, and what you need to know about your business’s obligations when it comes to issuing them. To quickly find the answer to a specific question, jump to the sections below.

Form 1099 definition

What is a 1099? Definition, importance and components

Form 1099 is an IRS tax form known as an information return, meaning you fill out the form as a source of information about your business. There are several types of 1099 forms, but the most common is 1099-MISC, which is used to report miscellaneous income. Form 1099-MISC is used to report other types of income, while a Form W-2 is used to report salary or hourly wages.

Why are 1099s important? 

As a business owner, you are required to report the income you’ve paid independent contractors for outsourced work. Contractors rely on 1099s to accurately file their tax returns and pay their self-employment taxes.

Independent contractors can be vital to growing your business. Working with contractors allows you to outsource projects and certain skilled services so you don’t have to hire a full-time employee. However, you must understand the differences in paying and reporting income for employees vs. independent contractors.

Neglecting to do so can also put you in bad standing with the IRS, including accumulating penalties against your business.

Who gets a 1099?

Any person or independent contractor—corporations not included—who receives at least $600 in nonemployment income during a calendar year should get a Form 1099. This includes:

  • Anyone who is not an employee—an employee is someone who is paid a salary or hourly wage
  • The self-employed
  • An LLC that is not taxed as a corporation
  • Anyone who has control over how and when they work—you only stipulate the specs for project delivery

What are the components of a 1099?

Showcasing a 1099 example with a 1099-NEC

Like any other tax form, several boxes need to be filled out on Form 1099. The key components of a 1099 for independent contractors include:

  1. Company name
  2. Company address
  3. Payer’s Taxpayer Identification Number (TIN)
  4. Recipient’s TIN
  5. Employee compensation—anything over $600 is considered taxable income and should be reported

There is also a box for backup withholdings, which typically applies to investors. However, if a vendor has provided you with the incorrect TIN or no TIN, you may need to fill this section in. We’ll cover backup withholdings in more detail in a moment.


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

How to identify a 1099

The IRS makes the identification of its forms relatively easy. For example, in the image above, you can identify the form as a 1099-MISC by the box in the upper right-hand corner. This is true for all types of 1099s. Visit the IRS website for a list of forms and specific instructions.

Types of 1099s: Which 1099 form do I need? 

All types of 1099s apply to businesses—the most commonly used 1099 forms include 1099-MISC, 1099-NEC, 1099-R, and 1099-S. We’ll cover these more in-depth below.

1099-MISC

  • Form 1099-MISC is used to report miscellaneous payments such as rent, awards, royalties, medical and health care payments, and more. This form is typically used by anyone who has paid at least $600 in one of these categories in the past year.

1099-NEC

  • Form 1099-NEC is used to report non-employee income. Form 1099-MISC was used for independent contractors in prior years, but the 1099-NEC is used for tax years 2020 and beyond. You will only need a 1099-NEC for payments totaling $600 or more for the calendar year.

1099-A

  • Form 1099-A is for the acquisition or abandonment of secured property (foreclosure). This form is typically used by lenders when a property has been transferred due to foreclosure.

1099-B

  • Form 1099-B is for proceeds from broker and barter exchange transactions. This form is used by brokers to report the sale of stocks, securities, and the like. Brokers must submit a 1099-B to each individual to report gains or losses from transactions.

1099-C

  • Form 1099-C is for the cancellation of debt. This form is sent from the debtor to the individual with canceled debt. This is used for credit card debt forgiveness because the IRS often considers canceled debt to be taxable income.

1099-CAP

  • Form 1099-CAP is for changes in corporate control and capital structure. This type of 1099 is issued to shareholders who receive cash, stock, and the like. from substantial structural changes or acquisitions.

1099-G

  • Form 1099-G is for certain government payments. This form is used by government agencies to report income paid to taxpayers— typically tax refunds and unemployment.

1099-R

  • Form 1099-R is for distributions from retirement or IRAs. This form is used for withdrawals from an individual retirement account. It may also be used to report distributions from pension plans, profit-sharing, and annuities.

1099-S

  • Form 1099-S is for proceeds from real estate transactions. This form is used to report income from the sale or exchange of real estate, and may also be used for income from certain royalty payments.

1099-DIV

Form 1099-DIV is used to reference any interest income, dividends, tax refunds, or unemployment benefits that were paid out by banks or other financial institutions.

1099 best practices for small businesses

Here are a few best practices to streamline how you create and send out 1099s for independent contractors:


  • Confirm your TIN, which can be found on your previous tax returns or forms filed with the IRS.
  • As soon as a contractor is onboarded, have them fill out a W-9.
  • Keep all of your contractor information up to date.
  • Use payroll software to keep the information such as payment history organized.
  • Know your form deadlines—1099s are considered late as of February 1.
  • Stay up to date with the IRS website so you’re aware of requirement changes.

How to pay 1099 contractors

Details of the 5 steps to paying a 1099 contractor

Paying a 1099 contractor is done either manually through cash or check, or digitally through direct deposit or a third party like Venmo. The key to a healthy relationship with your contractors—and remaining in good standing with the IRS—is to follow the proper payment process. Here are a few key steps to follow to make sure you pay your 1099 workers correctly:

Step 1. Have each contractor fill out a W-9

While this might seem like a small step, it is essential to properly complete their 1099. It’s best to get a W-9 from the contractor as soon as you start working with them.

What is a W-9?

Form W-9 is a payroll form used to gather information about the contractor, specifically their:

  • TIN
  • Legal business name
  • Contact information
  • Social Security number
  • Full legal name

There is no official deadline for the W-9, but you should ensure that you receive it from each contractor before the end of the tax year. 

Step 2. Pay your contractors accurately and on time 

Since 1099 workers aren’t on payroll, you will need to manually pay them via cash or check or an online solution such as PayPal or Venmo. To further simplify things, you can also use payroll services and software like QuickBooks to automatically track invoices and make payments for each independent contractor.

Step 3. Determine whether you are responsible for backup withholdings 

Typically, you won’t have to worry about withholding for 1099 workers because they are responsible for paying self-employment taxes on their income tax returns. Self-employment taxes cover Medicare and Social Security taxes that are traditionally paid by employers on behalf of their employees.

TIN matching

If the contractor did not provide a TIN—or provided the wrong TIN—you may be responsible for backup withholdings on their behalf. If this is the case, the withholding rate is 24%

To avoid this, you can use two IRS services that match up to 25 companies and verify their W-9 information:


  • Interactive TIN matching
  • Bulk TIN matching

Step 4. Fill out Form 1099 and send it to the contractor

This is where the information from the W-9 comes in handy. You will fill out the 1099 with the contractor’s information, including:

  • Their legal name
  • Their TIN
  • Their business entity type
  • The total amount you’ve paid them throughout the year

If you use payroll software, you’ll have payment information readily available. If you don’t, then you’ll need to compile the information by hand. Once you complete Form 1099-MISC/NEC, you should send Copy B to the contractor so they can file their taxes. Hold on to Copy A for your taxes.

When do I send out 1099s?

If you are issuing 1099s to vendors, you need to send them out by January 31 at the latest. According to the IRS, requiring businesses to comply with this deadline helps “fight tax fraud and verify income reported on individual tax returns.”

Stress-free 1099 prep

Tax season is stressful enough without the added pressure of missed deadlines and penalties. Be aware that 1099s sent after the deadline are considered late. If you fail to send a Form 1099 by January 31, you may be subject to IRS penalties. 

For example, small businesses—those with gross receipts of $5 million or less—may have to pay $50 per late form. This penalty can add up quickly, so make sure you set a reminder for the 1099 deadline.

For assistance in preparing, sending, and submitting 1099 documents, you may want to consult your CPA or a tax professional.

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.


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