Key Takeaways
- A 1099 is an IRS form that reports income paid to someone outside of normal W-2 payroll.
- The most common one for businesses is the 1099-NEC, used to pay independent contractors.
- Generally, you must send a 1099-NEC to any contractor or unincorporated vendor you paid $600 or more during the year.
- Deadlines matter: 1099-NEC forms are typically due to recipients and the IRS by January 31.
A 1099 is an IRS information form used to report income paid to someone who isn’t your employee—most often an independent contractor, freelancer, or vendor. For small businesses, the most important one is the 1099-NEC (Nonemployee Compensation).
The short answer to who gets one: generally, any contractor or unincorporated business you paid $600 or more over the year. Issuing them correctly and on time keeps you compliant and helps your contractors file their own taxes.
Think of a 1099 as the contractor’s equivalent of a W-2. A W-2 reports wages to an employee; a 1099-NEC reports payments to someone you hired but didn’t put on payroll.
What the form actually does
The 1099 tells both the recipient and the IRS how much you paid them during the tax year. The IRS uses it to ensure the recipient reports the income on their return. There are several types of 1099 (for interest, dividends, and more), but as a business owner paying for services, you’ll mostly deal with the 1099-NEC. A related form, the 1099-MISC, covers things like rent or prizes. According to the IRS, the 1099-NEC reports nonemployee compensation of $600 or more.
“The 1099 is the paper trail that keeps contractor income honest. Issue it correctly, and you’ve done your part; skip it, and the penalties land on you, not the contractor.”
— A small-business tax reality
Who you need to send a 1099 to
The general rule: send a 1099-NEC to each person or business that meets all of these:
- You paid them $600 or more during the calendar year.
- The payment was for services (not goods) in the course of your business.
- They are not your employee (contractors, freelancers, consultants).
- They operate as an individual, sole proprietor, partnership, or LLC taxed as such—generally not a corporation.
Payments to most corporations are exempt, and payments made via credit card or third-party platforms are reported by the processor (on a 1099-K), so you don’t double-report those.
Collect a W-9 first—always
The single best habit is to get a completed Form W-9 from every contractor before you pay them. The W-9 gives you their legal name, address, and taxpayer ID—exactly what you need to issue a 1099 later. Chasing this information down in January, after the work is long done, is a yearly headache you can avoid entirely by making the W-9 part of your onboarding. This ties directly into properly classifying who you’re paying, which is why understanding contractor vs. employee classification matters before you make the first payment.
Deadlines and penalties
Timing is tight. For the 1099-NEC, you generally must furnish a copy to the recipient and file with the IRS by January 31 following the tax year. Missing the deadline or filing incorrect forms triggers per-form penalties that rise the longer you wait, so it pays to prepare early. Many accounting and payroll tools can generate and e-file 1099s for you, dramatically reducing the risk of errors.
A realistic example
Consider an illustrative case. Lena runs a small marketing studio. Over the year, she paid a freelance designer $4,200, a copywriter $1,500, and a web developer who operates as an S corporation $8,000. She also bought $900 of software. At tax time, she issues a 1099-NEC to the designer and the copywriter (both over $600, both unincorporated), skips the developer (a corporation is generally exempt), and skips the software (a product, not services). Because she collected W-9s upfront, filling out the forms took minutes. She filed by January 31 and avoided any penalties.
How 1099s fit your bigger tax picture
Issuing 1099s is one piece of running a compliant business. The contractors receiving them handle their own freelancer taxes, including self-employment tax and quarterly estimated taxes—and if you’re a business owner yourself, you’ll want to understand those same obligations plus how to pay yourself. If you haven’t yet, getting a free EIN lets you issue 1099s without putting your Social Security number on every form. (This is general information, not tax advice—consult a tax professional for your situation.)
Frequently Asked Questions
Who has to receive a 1099-NEC?
Generally, any non-employee—contractor, freelancer, or unincorporated vendor—you paid $600 or more for services during the year. Corporations are usually exempt, and card payments or payments made through third-party platforms are reported separately by the processor.
What’s the difference between a 1099 and a W-2?
A W-2 reports wages paid to an employee, with taxes withheld. A 1099-NEC reports payments to a non-employee contractor with no taxes withheld; the contractor is responsible for their own taxes. The worker’s classification determines which form applies.
When are 1099s due?
For the 1099-NEC, you generally must send copies to recipients and file with the IRS by January 31. Late or incorrect filings carry per-form penalties that increase over time, so it’s wise to prepare early—and collect W-9s upfront.
Do I send a 1099 to an LLC?
Usually yes, if the LLC is taxed as a sole proprietorship or partnership and you paid $600+ for services. If the LLC is taxed as a corporation, it’s generally exempt. The W-9 you collect will indicate the LLC’s tax classification.
The Bottom Line
A 1099—specifically the 1099-NEC—is how your business reports payments to independent contractors. Send one to any unincorporated person or business you paid $600 or more for services, collect W-9s upfront to make it painless, and file by January 31 to avoid penalties. Handle it correctly, and it’s a minor annual task; ignore it and the penalties fall squarely on you.
