Quick overview

Employers (including sole proprietors, partnerships, corporations, LLCs, and nonprofits that pay non‑employees) must track certain payments to vendors, contractors, and other non‑employees and report them to both the recipient and the IRS. Commonly this means issuing a Form 1099 (for example, 1099‑NEC for nonemployee compensation) to the payee and, if you mail paper copies to the IRS, a single Form 1096 as a transmittal for the batch.

This article explains who must file which forms, standard thresholds, deadlines, common mistakes, corrective steps, and practical compliance tips drawn from years of client work.

Sources: IRS guidance on Form 1099‑NEC and Form 1096 (irs.gov).

Who must issue 1099s and why it matters

If you pay an independent contractor, freelancer, attorney, or other non‑employee $600 or more in a calendar year for services, you will generally need to issue a Form 1099‑NEC (nonemployee compensation). Other 1099 variants cover different payments (interest, dividends, rents, royalties, etc.). Accurate information returns allow the IRS to match income reported by payees to what employers reported.

In my practice advising small businesses, the most common failure modes are: (1) treating contractors like employees (or vice‑versa) without reviewing facts; (2) not collecting Form W‑9 up front; and (3) letting recordkeeping get disorganized so deadlines are missed.

IRS resources:

Which forms do you need and when to use Form 1096

  • Form 1099‑NEC: Use this to report nonemployee compensation (payments of $600 or more for services to independent contractors). Furnish the recipient copy and file with the IRS by the required deadline (see Deadlines).
  • Other 1099 forms (1099‑MISC, 1099‑INT, 1099‑DIV, etc.): Use these for rents, royalties, interest, dividends and other types of payment as defined on each form.
  • Form 1096: A transmittal summary required only when you file paper copies of information returns. If you file electronically, you do not submit a Form 1096.

Note: The IRS shifted most nonemployee compensation reporting to 1099‑NEC starting tax year 2020; double‑check which 1099 variant applies to a payment before filing.

Deadlines (current guidance through 2025)

  • Furnish recipient copies of most 1099s (including 1099‑NEC) by January 31 following the calendar year of payment. (IRS)
  • File 1099‑NEC with the IRS by January 31 (paper or electronic). (IRS)
  • For other 1099s, if filing on paper send to the IRS by February 28; if filing electronically, the deadline is March 31. (IRS)

Because deadlines can change, confirm current dates on the relevant IRS pages before filing.

Required information and common documentation steps

  • Collect a completed Form W‑9 (Request for Taxpayer Identification Number and Certification) from every contractor before you pay them. The W‑9 provides the legal name, business name (if any), address, TIN (SSN or EIN), and backup withholding certification.
  • Record each payment with invoice dates, gross amounts, dates paid, and method of payment. Accounting software that tags vendor types (employee vs. contractor) reduces errors.
  • If a payee fails to provide a TIN, you may still need to file a 1099 using their last known information and begin backup withholding where required (backup withholding rate has been 24% in recent years; see IRS guidance). (IRS: backup withholding)

Common mistakes and how to avoid them

  • Waiting until year‑end to gather payee information. Solution: collect W‑9 forms before the first payment.
  • Misclassifying workers. Use IRS guidance and a consistent classification process — misclassification can trigger payroll tax audits.
  • Filing late or filing incorrect totals. Automate or schedule quarterly reconciliations so your year‑end reporting is accurate.
  • Filing paper returns but forgetting Form 1096. If you mail paper 1099s, Form 1096 is required as the transmittal.

For a deeper dive into frequent filing penalties and how to reduce them, see our guide to information return penalties: Information Return Penalties: How to Avoid 1099 and W‑2 Filing Fines.

Penalties and IRS notices — practical response steps

Penalties for incorrect, incomplete, or late information returns vary based on how late the forms are and the size of the business. The IRS also sends notices when payee TINs do not match IRS records or when forms appear missing. If you receive an IRS notice about missing or mismatched 1099s, act promptly: verify your records, correct the information return if needed, and respond within the IRS timeline. Our checklist for responding to missing‑1099 notices walks through the steps: Responding to an IRS Notice About Missing 1099s: A Practical Checklist.

If a payee refuses to provide a TIN after reasonable requests, consult the IRS backup withholding rules; in many cases you must begin withholding at the backup rate and report the amount withheld.

Authoritative IRS pages:

Correcting errors after filing

If you discover errors after filing, correct the return as soon as possible. The correction process depends on the form type (1099‑NEC vs other 1099s). Typically you prepare a corrected 1099 and resubmit to the IRS and the payee, marking the form as “Corrected.” Keep documentation of what changed and why. For complex corrections or if you receive an IRS notice, consult a tax professional.

Practical workflow and best practices

  1. Get W‑9s up front: Make Form W‑9 part of your onboarding for any contractor or vendor.
  2. Use accounting software: Choose a package that supports 1099 tracking and e‑filing to reduce manual errors.
  3. Reconcile quarterly: Don’t let payee records pile up; quarterly checks catch issues early.
  4. Centralize vendor management: Keep contractor agreements, W‑9s, and invoices in one place.
  5. Decide on e‑filing: The IRS requires electronic filing once you exceed a threshold (check the current rule). E‑filing often reduces errors and allows longer filing periods for some forms.
  6. Train staff: Ensure whoever handles AP knows the difference between employee payroll and contractor payments.

In my experience, businesses that adopt a “collect‑first, pay‑second” approach (meaning they collect a W‑9 before issuing payment) eliminate the majority of 1099‑related headaches.

Real‑world example

A small marketing agency working with 12 freelancers paid more than $600 to each freelancer in a year. They had poor tracking and missed the January 31 recipient deadline. We implemented a simple contractor intake form, imported historic payments into their accounting system, issued corrected 1099‑NECs, and set calendar reminders for future deadlines. The result: no repeat notices from the IRS and much lower administrative strain.

When to consult a tax professional

Consult a CPA or tax attorney if you:

  • Make complex payments (attorney fees, noncash barter transactions, or foreign vendor payments).
  • Face an IRS notice about mismatches or missing returns.
  • Are unsure about worker classification (employee vs. contractor).

This article is educational only and does not replace personalized tax advice.

Professional disclaimer: This content is for educational purposes and reflects common practice and IRS guidance as of 2025. It is not tax advice. For specific situations, consult a qualified tax professional or legal advisor.