What Small Business Owners Need to Know About 1099s for Contractors

If you’ve paid independent contractors in your business, January brings an important deadline you don’t want to miss: issuing 1099-NEC forms. These forms are how the IRS tracks payments to non-employees, and failing to file them correctly—or on time—can result in penalties. Understanding the basics now can save you stress and help you stay compliant.

Why 1099s Matter

1099s are part of your business’s responsibility to report income paid to others. Unlike employees, independent contractors are responsible for handling their own taxes—but you still need to let the IRS know what they were paid. If you paid a contractor $600 or more during the calendar year for services related to your business, you’re required to send them a 1099-NEC. This form ensures both the IRS and the contractor have accurate income records.

Who Gets a 1099-NEC?

You must issue a 1099-NEC to each non-employee individual or business (typically sole proprietors and partnerships) you paid at least $600 for services. Common examples include:

• Freelancers and consultants

• Independent contractors

• Bookkeepers, graphic designers, IT support, and other service providers

Corporations generally do not receive 1099s, except in cases where they’re providing legal or medical services. To determine whether a contractor should receive a 1099, you should request a completed Form W-9 from them before or shortly after you begin working together.

Disclaimer: This post is for informational purposes only and is not legal or tax advice. Always consult with a qualified CPA or refer to the latest IRS guidance to ensure compliance with current rules and deadlines.