If you’re running a small business and hiring independent contractors, the 1099 form is more than just tax paperwork—it’s a legal responsibility that can impact your finances and IRS standing.
Whether you’re new to the form or need a refresher, this guide breaks down everything small business owners need to know—clearly, simply, and without overwhelming tax jargon.
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What Is a 1099 Form?
The 1099 form is an IRS document used to report income paid to someone who is not your employee. If you hired freelancers, consultants, or service providers and paid them $600 or more during the year, you’re likely required to send them a 1099—specifically, the 1099-NEC (Nonemployee Compensation) form.
It’s part of the IRS’s way of tracking taxable income. The form helps ensure that those who earn money from side gigs, freelance work, or contract jobs report it correctly.
Who Needs to Send a 1099 Form?
As a small business owner, you must file a 1099 form if:
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You paid an independent contractor $600 or more in a tax year.
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The contractor is not your employee.
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The payment was made for services related to your business.
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The contractor is not incorporated (in most cases; C-corps and S-corps are typically exempt).
Common examples include:
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Web developers
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Virtual assistants
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Freelance marketers
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IT support consultants
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Photographers or designers
Tip: Always collect a W-9 form from your contractors before paying them. It includes their name, business name, and taxpayer identification number (TIN)—details you’ll need for the 1099.
Which Type of 1099 Should You Use?
There are over a dozen types of 1099 forms, but the most relevant for small businesses is:
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1099-NEC (Nonemployee Compensation) – for payments to freelancers or contractors.
Other 1099 types (for reference):
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1099-MISC – for things like rent, legal settlements, or prizes.
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1099-INT – for interest income (e.g., from bank accounts).
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1099-DIV – for dividend income.
When Are 1099 Forms Due?
You must send 1099-NEC forms to recipients by January 31 and file them with the IRS by the same date. If you miss the deadline, you may face penalties—even if the payment was reported late but correctly.
| Action | Deadline |
|---|---|
| Send 1099 to contractors | January 31 |
| File with IRS (paper/e-file) | January 31 |
How to Prepare and File a 1099 Form
Filing 1099 forms can be surprisingly simple if you plan ahead. Here’s a step-by-step breakdown:
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Collect W-9 Forms
Do this before making any payments. It provides the legal name, address, and TIN of the contractor. -
Track Payments
Use bookkeeping software (like QuickBooks or FreshBooks) to monitor who earns $600 or more. -
Fill Out the 1099-NEC
Enter your business info, the contractor’s info, and the total amount paid. -
Submit the Form
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Mail a copy to the contractor.
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File with the IRS via mail or e-file (e.g., through IRS-approved providers).
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Keep Records
Retain copies for at least 4 years in case of audits.
What Happens If You Don’t File a 1099?
Ignoring your 1099 obligations can lead to IRS penalties:
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$60–$310 per form (depending on how late it is)
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Up to $1.2 million in penalties per year for small businesses
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IRS scrutiny or audits
Even if you’re not sure whether to send a 1099, it’s better to err on the side of caution.
Pro Tips to Stay Compliant
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Use accounting software that tracks 1099-eligible vendors.
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Hire a tax professional if you’re dealing with many contractors.
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Avoid paying in cash, as it’s harder to track and prove.
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Review contractor status—misclassifying employees as contractors can lead to fines.
Final Thoughts: The 1099 Form Isn’t Just Paperwork—It’s Protection
For small business owners, the 1099 form helps you stay compliant, transparent, and organized. Filing correctly builds trust with contractors, avoids penalties, and keeps the IRS off your back.
If you’re unsure about your obligations, talk to a tax advisor. But if you keep good records and stay ahead of deadlines, 1099 season doesn’t have to be stressful.