How to Prepare and File a 1099 Form (Detailed Breakdown)

by | Mar 22, 2025 | Business Law, General Counsel, Nonprofit Law

How to Prepare and File a 1099 Form (Detailed Breakdown)

If you’ve paid an independent contractor or business $600 or more during the tax year for services, you generally need to issue Form 1099-NEC (Nonemployee Compensation) to report the payments. Here’s a step-by-step guide on how to prepare and file it properly.

Step 1: Determine If You Need to File a 1099

You must issue Form 1099-NEC to a contractor if:
✅ You paid $600 or more in the tax year for services performed.
✅ The contractor is an individual, sole proprietor, LLC (not taxed as an S or C corp), or partnership.
✅ The payment was made in cash, check, or direct deposit (payments via credit card, PayPal, or a third-party platform are reported by those payment processors on Form 1099-K, so you don’t need to issue a 1099 for them).
✅ The contractor is not an employee (employees receive a W-2 instead).

You do not need to file a 1099-NEC for:
❌ Corporations (except for attorneys and medical providers).
❌ Rent payments (use Form 1099-MISC instead).
❌ Payments made via credit card or payment platforms (reported on 1099-K).

Step 2: Gather Required Information

Before issuing a 1099, you need the contractor’s information. This is typically collected using Form W-9.

  • Full name or business name
  • Address
  • Taxpayer Identification Number (TIN) or Social Security Number (SSN)
  • Entity type (individual, sole proprietorship, LLC, etc.)

If the contractor has not provided a W-9, request it immediately to avoid filing delays.

Step 3: Complete Form 1099-NEC

Key Boxes to Fill Out on Form 1099-NEC

Box Number Description
Box 1 Total payments made to the contractor ($600 or more)
Box 4 Federal income tax withheld (only if backup withholding was required)
Payer’s Info Your business name, address, EIN (or SSN if sole proprietor)
Recipient’s Info Contractor’s name, address, and TIN/SSN
Box 5-7 Used only if you need to report state tax withheld (usually blank)

✅ Pro tip: Always double-check the information against the W-9 to avoid errors and potential IRS penalties.

Step 4: Prepare & File Form 1096 (If Filing by Mail)

  • If filing by paper, you must also submit Form 1096, which is a summary of all the 1099s you’re filing.
  • If e-filing, Form 1096 is not required.

Step 5: File the 1099-NEC With the IRS

You must file Form 1099-NEC with the IRS, not just give it to the contractor. There are two ways to do this:

  1. E-File With the IRS (Preferred)

✅ The IRS requires e-filing if you issue 10 or more 1099 forms.
✅ Use IRS FIRE System (requires setup) or a third-party service like:

  • IRS-approved e-file providers (e.g., Track1099, Tax1099, Intuit, etc.)
  • Accounting software (e.g., QuickBooks, Gusto, Wave)
  1. Mail Paper Forms to the IRS

✅ If you file fewer than 10 forms, you can mail them using official IRS scannable forms (not copies printed from the internet).
✅ Mailing Address: Depends on your state (check IRS instructions).
✅ Deadlines:

  • January 31 – Send Copy B to the contractor
  • January 31 – File Copy A with the IRS

✅ Where to Get Official Forms:

  • IRS Forms Order (https://www.irs.gov/forms-pubs/order-forms-publications)
  • Office supply stores (Staples, Office Depot, etc.)

Step 6: Send Copy to the Contractor

You must provide a copy of Form 1099-NEC to the contractor by January 31.

  • Delivery Options:
    ✅ Mail a physical copy.
    ✅ Provide it electronically if the contractor consents in writing.

Copies Breakdown

  • Copy A → Sent to the IRS
  • Copy B → Given to the contractor
  • Copy C → Kept for your business records

Step 7: Keep Records for at Least 4 Years

The IRS may audit your business, so keep copies of:
✅ Form 1099s
✅ W-9s from contractors
✅ Proof of payments (bank transfers, checks, invoices)

Penalties for Not Filing a 1099

If you fail to file on time, the IRS may charge penalties:

  • $50 per form if filed within 30 days of the deadline
  • $110 per form if filed after 30 days but before August 1
  • $290 per form if filed after August 1 or not filed at all
  • Up to $580 per form if the IRS finds intentional disregard

Summary Checklist

✅ Collect W-9 from contractor
✅ Determine if they qualify for a 1099-NEC
✅ Fill out Form 1099-NEC
✅ File with the IRS (electronically or by mail)
✅ Send a copy to the contractor by January 31
✅ Keep records for at least 4 years