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:
- 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)
- 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
