How to Issue a 1099: W-9, Filing, and Penalties

To issue a 1099 to a contractor, collect a Form W-9 from them, add up what you paid them for services during the year (excluding anything you ran through a credit card or payment app), and if the total is $600 or more, report it on Form 1099-NEC — sending Copy B to the contractor and Copy A to the IRS by January 31. That is the short version of how to issue a 1099; the rest of this article walks through the pieces most likely to trip you up, from worker classification through corrections and penalties.¹

Confirm the Payment Actually Requires a 1099

The reporting rule applies only to payments made in the course of a trade or business. Hiring someone to remodel your personal kitchen doesn’t trigger a filing; hiring the same person to remodel a rental unit does.¹

Above that, the main trigger is $600. If you paid a non-employee at least $600 for services during the calendar year, you owe them a 1099-NEC.² The same $600 floor applies to rent and several other categories reported on the 1099-MISC. Royalties are the outlier: $10 triggers a filing.¹

Contractor or Employee

Employees get W-2s, not 1099s. The IRS looks at three categories to draw the line: behavioral control (do you direct how the work gets done, or just the result?), financial control (does the worker have their own tools, set their own rates, and stand to profit or lose?), and the type of relationship (project-based or ongoing, with benefits?).³ No single factor decides it. Misclassifying an employee as a contractor can pull you into liability for unpaid employment taxes, penalties, and interest.

Corporations and LLCs

Payments to a C corporation or S corporation generally don’t require a 1099.⁴ Two exceptions override that: medical and health care payments, and payments to attorneys, are reported regardless of the recipient’s corporate status.⁵

LLCs are where people get stuck. An LLC that elected to be taxed as a C or S corporation is treated as a corporation, so no 1099 (subject to the medical and legal exceptions). An LLC that hasn’t made a corporate election is taxed as a sole proprietorship or partnership, and payments to it get reported like payments to an individual.⁵ The W-9 tells you which one you’re dealing with, which is why the W-9 has to come first.

Get the W-9 Before You Pay

Collect a completed Form W-9 from every contractor before the first payment goes out. The W-9 gives you the legal name, business name, address, entity type, and Taxpayer Identification Number you’ll need to file. For individuals the TIN is usually a Social Security Number; for businesses it’s an Employer Identification Number.⁶

Before filing season, you can run the contractor’s name and TIN through the IRS’s free TIN Matching tool in the e-Services portal to catch mismatches early.⁷ That check today avoids penalty notices months from now.

If the Contractor Won’t Give You a W-9

If a contractor refuses to provide a W-9, gives you an incorrect TIN, or the IRS notifies you that a TIN doesn’t match, you have to start backup withholding at a flat 24% on all future payments to them.⁸ The withheld amount goes to the IRS on Form 945, and withholding continues until they hand over a valid W-9.⁶

Choose the Right Form and Box

For contractor payments, Form 1099-NEC (Nonemployee Compensation) is almost always the form. Fees, commissions, and payments to attorneys for their legal services all go in Box 1.¹

Form 1099-MISC (Miscellaneous Information) covers income that isn’t compensation for services:

Rents of $600 or more to non-corporate landlords (Box 1)
Royalties of $10 or more (Box 2)
Medical and health care payments of $600 or more, even to corporations (Box 6)
Gross proceeds paid to attorneys of $600 or more — settlement or similar proceeds routed through a law firm that aren’t fees for the firm’s own services (Box 10)

Attorney payments are the classic source of confusion. Paying a lawyer for advice or representation goes on the 1099-NEC. Forwarding settlement proceeds through a law firm that aren’t compensation for the firm goes on the 1099-MISC.⁵

Add Up Only What Belongs in the Box

For the 1099-NEC, only payments for services count toward Box 1. Amounts you paid the contractor for equipment, materials, or supplies purchased on your behalf don’t belong there.

Expense reimbursements under an accountable plan — meaning the contractor substantiated the expenses and returned any excess — are generally excluded. Reimbursements outside an accountable plan get included.

Sales tax follows who actually owes it. If the tax is imposed on the contractor and you pay it as part of their invoice, include it. If the tax is imposed on you as the buyer and the contractor is just collecting for the state, leave it out.¹

Exclude Card and Payment-App Transactions

This is where businesses accidentally double-report. Payments you made through a credit card, debit card, or third-party payment network — PayPal, Venmo for business, Stripe, and similar — do not go on the 1099-NEC. The payment processor reports those on Form 1099-K instead, and reporting the same money on both forms creates a duplicate that triggers IRS notices for the contractor.⁹ The 1099-NEC should reflect only what you paid by check, cash, ACH, or wire.

File the Forms

Send the Contractor Their Copy

You must furnish Copy B to the contractor by January 31 of the year after the payment year. Both the 1099-NEC and 1099-MISC follow that deadline for recipient copies.¹⁰ Mail or electronic delivery both work, but electronic delivery requires the recipient’s affirmative consent, along with disclosure of hardware and software requirements, an explanation of how to withdraw consent, and a commitment to provide a paper copy if they decline.¹¹

Send the IRS Its Copy

Deadlines for the IRS copy depend on the form:

Form 1099-NEC: January 31, whether you file on paper or electronically.¹
Form 1099-MISC on paper: February 28.
Form 1099-MISC electronically: March 31.¹⁰

If a due date lands on a Saturday, Sunday, or legal holiday, it moves to the next business day.¹²

E-File or Paper

If you have 10 or more information returns of any type to file during the calendar year, electronic filing is mandatory.¹³ That count aggregates across types, so five 1099-NECs plus five W-2s puts you at the threshold and everything has to be e-filed. The IRS’s Information Returns Intake System (IRIS) Taxpayer Portal is free and lets you enter data by hand or upload by CSV, e-file up to 100 returns per submission, and download payee copies.¹⁴ Access requires an IRIS Transmitter Control Code, which you apply for through e-Services. The older FIRE system is set to retire after the 2027 filing season, so new filers should start with IRIS.¹⁵

If you file fewer than 10 returns and go by paper, include Form 1096 as a cover sheet summarizing the batch.¹⁶ You need a separate 1096 for each type of 1099 — one for your 1099-NECs, another for any 1099-MISCs. Form 1096 isn’t used for electronic submissions.

Don’t Forget the State

Many states require 1099 information filed with their revenue departments separately. The IRS’s Combined Federal/State Filing Program can forward your electronically filed 1099-NEC and 1099-MISC to participating states at no cost.¹⁷ Not every state participates, and some that do still require a separate notification. Check each state where your contractors work or reside.

If You Need More Time

Form 8809 gets you a 30-day extension on the IRS filing. For most forms it’s automatic. For the 1099-NEC it isn’t — you have to submit a paper 8809 with a written explanation.¹⁸ Either way, the extension covers only the IRS filing. The January 31 deadline for getting Copy B to your contractors doesn’t move.

Fixing an Error

The correction process depends on what went wrong.¹⁰

Wrong dollar amount, code, or checkbox: prepare a new 1099 with the right information, check the “CORRECTED” box at the top, and file it with a new Form 1096. Send the corrected copy to the recipient. Don’t include the original incorrect return.

Wrong name, TIN, or wrong form type: this takes two filings. First, void the incorrect return by submitting a corrected form with all the original wrong information but every dollar amount zeroed out. Second, file a brand-new return, without the “CORRECTED” box checked, containing all the correct information. On the new Form 1096, write “Filed To Correct TIN,” “Filed To Correct Name,” or “Filed To Correct Return” in the bottom margin, depending on the error. If your original returns had to be e-filed, corrections do too.

Penalties If You File Late or Wrong

The IRS charges per-form penalties that escalate with how late you file. For returns due in 2026:¹⁹

Filed within 30 days of the deadline: $60 per return
Filed after 30 days but by August 1: $130 per return
Filed after August 1 or not filed at all: $340 per return
Intentional disregard: $680 per return, no maximum

The penalty tiers apply separately to the IRS filing and to the recipient statement, so one overlooked contractor can generate two penalties. The same tiers apply to returns filed with incorrect information. Filing a correction quickly moves you into a lower bracket, which is why catching mistakes fast is worth more than most people think.

Keep the Paperwork

Hold on to copies of every issued 1099, the W-9s you collected, and your payment records for at least four years after the filing date.²⁰ If the IRS questions a return or a contractor disputes what you reported, that file is your proof.

1
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
2
Internal Revenue Service. Forms and Associated Taxes for Independent Contractors
3
Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
4
Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return?
5
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025)
6
Internal Revenue Service. Instructions for the Requester of Form W-9 (03/2024)
7
Internal Revenue Service. Taxpayer Identification Number (TIN) Matching Tools
8
Internal Revenue Service. Topic No. 307, Backup Withholding
9
Internal Revenue Service. Form 1099-K FAQs: Third Party Filers of Form 1099-K
10
Internal Revenue Service. General Instructions for Certain Information Returns (2025)
11
Internal Revenue Service. Requirements for Furnishing Form 1099-G Electronically
12
Internal Revenue Service. Employment Tax Due Dates
13
Federal Register. Electronic-Filing Requirements for Specified Returns and Other Documents
14
Internal Revenue Service. E-File Information Returns With IRIS
15
Internal Revenue Service. Filing Information Returns Electronically (FIRE)
16
Internal Revenue Service. About Form 1096, Annual Summary and Transmittal of U.S. Information Returns
17
Internal Revenue Service. Combined Federal/State Filing (CF/SF) Program
18
Internal Revenue Service. Form 8809 Application for Extension of Time to File Information Returns
19
Internal Revenue Service. Information Return Penalties
20
Internal Revenue Service. Employment Tax Recordkeeping