Form 1099

Form 1099 is the IRS tax form companies issue to non-employee individuals paid $600 or more in a calendar year. The form reports the income to both the recipient and the IRS. Recipients include independent contractors, freelancers, gig workers, and certain other payees like landlords, attorneys, and vendors. The most common variant is Form 1099-NEC (Non-employee Compensation) used for contractor payments; Form 1099-MISC covers miscellaneous payments like rent and prizes. It's the contractor counterpart to the W-2 form issued to employees.

The 1099 ecosystem:

Form 1099-NEC (Non-Employee Compensation): the most common form for contractors. Used to report payments of $600+ to independent contractors, freelancers, and self-employed individuals. Reintroduced by the IRS in 2020.

Form 1099-MISC: for miscellaneous payments. Rent, prizes/awards, attorney legal services (separate from legal fees), royalties, fishing boat proceeds, and others.

Form 1099-K: for payments processed through third-party platforms (Stripe, PayPal, Venmo). Threshold of $600 in 2024+ (was $20K previously; threshold has been in flux due to legislation).

Form 1099-INT, 1099-DIV, 1099-B, etc.: various financial forms for interest, dividends, brokerage, etc.

The annual 1099 workflow:

At engagement (before first payment):

1. Collect W-9 from contractor with their legal name, address, and Tax Identification Number (TIN or SSN).
2. Verify the W-9 information.
3. Track all payments to the contractor throughout the year.

At year-end (January following the tax year):

1. Tally payments to each contractor.
2. Issue Form 1099-NEC to any contractor who received $600+ during the year.
3. File copies with the IRS.
4. Deadline: typically January 31 for both contractor delivery and IRS filing.

Who must receive a 1099:

Independent contractors and freelancers: anyone paid $600+ for services who isn't an employee.

LLC contractors: single-member LLCs typically get 1099s; multi-member LLCs and S/C-corps usually don't (corporations are generally exempt).

Attorneys: any payment of $600+ to attorneys requires 1099-NEC (or 1099-MISC for gross proceeds in some cases).

Landlords: rent of $600+ requires 1099-MISC.

Not required: employees (they get W-2 instead), corporations (with exceptions), payments under $600.

International contractors:

Form W-8 BEN: foreign individuals collected before payment. Establishes foreign status.

Form W-8 BEN-E: foreign entities.

Generally not 1099-eligible: foreign contractors typically get neither 1099 nor W-2; payments may be subject to withholding under tax treaties.

Common mistakes:

Missing W-9 collection: paying contractors without W-9 on file means you might not have the info to issue 1099 at year-end. IRS penalty for missing/incorrect 1099s.

Misclassification: treating workers as contractors (1099) when they should be employees (W-2). IRS has multiple-factor tests (behavioral control, financial control, relationship type). Misclassification carries significant tax penalty.

Threshold confusion: $600 threshold applies to total annual payments, not per-transaction. Many small payments adding up to $600+ trigger 1099 requirement.

Late filing: deadline is January 31 for both contractor and IRS filing. Penalties for late filing scale with how late.

Form choice errors: 1099-NEC vs 1099-MISC depending on payment type. Wrong form means corrected forms required.

Tools that automate 1099s:

• Payroll platforms (Gusto, Rippling, Justworks): handle 1099 generation alongside W-2 payroll.
• Contractor management (Deel, Remote.com): contractor-specific tools.
• Accounting platforms (QuickBooks, Xero): generate 1099s from payment records.
• Standalone services (track1099.com, 1099-etc): for companies that just need 1099 service.

What founders get wrong: Misclassifying employees as contractors to save on payroll taxes. The IRS catches this in audits; the back taxes, penalties, and interest can be significant. The right discipline: understand the multi-factor test for employee vs contractor; classify correctly from the start; use real employees for ongoing work and contractors only for genuinely contracted scope.

Related: Independent Contractor · Employee vs Contractor · EIN · Employment Agreement

FAQ

What is Form 1099?
The IRS tax form companies issue to non-employee individuals (independent contractors, freelancers) and certain other payees who were paid $600+ in a calendar year. Most common variant: 1099-NEC for non-employee compensation.

Who needs to receive a 1099?
Independent contractors and freelancers paid $600+ during the year, single-member LLC contractors, attorneys (any amount $600+), landlords (rent $600+). Not required for employees (they get W-2), corporations (with exceptions), or payments under $600.

When are 1099s due?
January 31 for both contractor delivery and IRS filing. Late filing penalties scale with how late (starting at $60/form, up to $310/form for very late filings).

What's the difference between W-9 and 1099?
W-9 is collected from the contractor at engagement (before payment) with their legal name, address, and Tax ID. 1099 is issued by the company at year-end to report the payments. W-9 enables the 1099; missing W-9 means missing or incorrect 1099.