A 1099 form reports the money you paid to people who are not your employees. If you paid an independent contractor $600 or more during the tax year, the IRS expects you to file one. Most contractor payments use Form 1099-NEC, which stands for nonemployee compensation. Get it right and you avoid penalties, keep clean books, and stay on good terms with the crews you hire.

Who needs a 1099 form?

Send a 1099-NEC to any independent contractor or unincorporated business you paid $600 or more for services in the year. This covers subs, freelancers, and one-off trade help. It does not cover employees, who get a W-2 instead.

The line between the two matters. The IRS looks at three things to decide:

  • Behavioral control: Do you control how, when, and where the work gets done?
  • Financial control: Does the worker supply their own tools and carry their own profit or loss risk?
  • Relationship: Is the work project-based with a clear end, or ongoing and open-ended?

Misclassifying a worker is a costly mistake. If you treat an employee like a contractor, you can owe back taxes, penalties, and unpaid worker's comp. For a deeper look at where these obligations come from, see our guide to contractor payroll liabilities.

What is the difference between a 1099 and a W-2?

A W-2 goes to employees. You withhold income tax, Social Security, and Medicare from their pay, and you remit those taxes for them.

A 1099 goes to contractors. You do not withhold anything. The contractor handles their own self-employment tax and quarterly payments. If you want the other side of that story, read how independent contractors file their own taxes.

How do you collect the right information first?

Before you cut a check to a new contractor, get a signed Form W-9. It gives you their legal name, address, and taxpayer identification number (TIN). You need the TIN to file an accurate 1099 later.

Make the W-9 part of your onboarding. Collecting it up front beats chasing a sub for a TIN in January. Store every W-9 with the contractor's file so the data is ready at year-end. Tools that connect to your books, like QuickBooks integration, keep payment totals and contractor records in one place.

Steps to generate and submit 1099 forms

Step 1: Total each contractor's pay for the year

Add up everything you paid each contractor for services. Confirm the total crosses the $600 threshold before you issue a form. Payments made by credit card or third-party network are reported separately, so exclude those.

Step 2: Fill out the 1099-NEC

Enter the contractor's name, address, and TIN from their W-9, plus the total you paid in Box 1. Double-check the numbers against your payment records.

Step 3: Review against your books

Cross-check each form against your accounting records. A clean reconciliation now prevents corrected filings later.

Step 4: Send copies and file with the IRS

Send each contractor their copy and file with the IRS. Electronic filing gives you instant confirmation and fewer mailing errors. If you file 10 or more information returns in a year, the IRS requires you to file electronically.

Key deadline: 1099-NEC forms are due to both the contractor and the IRS by January 31. Filing late, or with a wrong TIN, can trigger per-form penalties. Deadlines and penalty amounts can change, so confirm the current rules with the IRS or your accountant.

How do you keep records audit-ready?

Good records turn tax season into a quick task instead of a scramble.

  • Keep every W-9 on file before the first payment goes out.
  • Update payment totals as you pay, not all at once in January.
  • Store supporting docs like contracts and invoices with each contractor.
  • Back up your data so a lost laptop never means lost records.

Accurate books also help with more than 1099s. They feed job costing, payroll, and your tax return. For the bigger picture, see how to handle construction payroll liabilities and connect them to the jobs that create them.

When should you issue a 1099 vs a W-2?

Issue a 1099 when the worker runs their own operation. They set their own hours, use their own tools, take work from other clients, and bill you per job. A roofing sub you call for one project is a classic 1099 case.

Issue a W-2 when you direct the daily work. If you set the schedule, supply the tools, and the person works only for you, they are likely an employee. When the call is close, ask your accountant or a labor attorney before you decide. The cost of guessing wrong is higher than the cost of asking.

Key takeaways

  • Issue a 1099-NEC to any contractor you paid $600 or more for services in the year.
  • Employees get a W-2 with taxes withheld. Contractors get a 1099 with no withholding.
  • Collect a signed W-9 before the first payment so you have an accurate TIN.
  • 1099-NEC forms are due to contractors and the IRS by January 31.
  • Contractor software like Werx connects payment data and QuickBooks so totals are ready at year-end.