What Form Do You Give a 1099 Employee?

Businesses engaging independent contractors must report payments made to these individuals to the IRS. While often called “1099 employees,” these individuals are independent contractors, not employees. Correct classification and reporting are essential for tax compliance.

Clarifying the Recipient and the Relationship

An independent contractor provides services to a business but maintains control over how the work is performed. This distinction contrasts with an employee, for whom the business dictates the means and methods of work. Businesses generally must report payments of $600 or more made to independent contractors in a calendar year for services performed in the course of their trade or business. This reporting threshold applies to a broad range of payments.

Common types of payments requiring reporting include fees, commissions, and other compensation for services. However, certain payments are generally exempt from this reporting requirement, such as payments made to corporations (with exceptions for legal and medical services), payments for merchandise, or certain personal payments. Payments made via credit card, debit card, or third-party payment networks like PayPal are also typically excluded from a business’s 1099-NEC or 1099-MISC reporting obligations, as the payment processor usually reports these transactions on Form 1099-K.

Gathering Necessary Payer Information

To accurately prepare a Form 1099, businesses must collect specific information from each independent contractor. This information includes the contractor’s full legal name, address, and taxpayer identification number (TIN). A TIN can be either a Social Security Number (SSN) for individuals or an Employer Identification Number (EIN) for businesses.

The standard document for collecting this information is IRS Form W-9, “Request for Taxpayer Identification Number and Certification.” Businesses should request a completed Form W-9 from independent contractors before making any payments to ensure all necessary details are on hand for year-end reporting. The form also includes a certification section where the contractor attests to the accuracy of their TIN and their exemption from backup withholding.

Understanding and Preparing the Payment Form

For reporting payments made to independent contractors for services, IRS Form 1099-NEC, “Nonemployee Compensation,” is the primary form. This form specifically reports nonemployee compensation, which was previously reported on Form 1099-MISC. While Form 1099-MISC, “Miscellaneous Information,” is still used, it now covers other types of payments like rents, royalties, and prizes.

Businesses can obtain official IRS forms, including Form 1099-NEC, directly from the IRS website. When completing Form 1099-NEC, businesses input their own information, such as their name, address, and Federal Employer Identification Number (FEIN). The contractor’s information, including their name, address, and TIN, which was gathered from their Form W-9, is entered into the recipient fields. The total amount of nonemployee compensation paid to the contractor during the calendar year, if $600 or more, is reported in Box 1 of Form 1099-NEC.

Distributing and Submitting the Form

After preparing the Form 1099-NEC, businesses must distribute copies to the independent contractors and file copies with the IRS. Copy B of Form 1099-NEC must be furnished to the recipient by January 31 of the year following the payment. This deadline ensures contractors have the necessary information to prepare their own tax returns. Similarly, Copy A of Form 1099-NEC must be filed with the IRS by January 31.

For submission to the IRS, businesses have two primary methods. Paper filing requires sending Copy A of the Form 1099-NEC along with Form 1096, “Annual Summary and Transmittal of U.S. Information Returns,” which serves as a cover sheet summarizing the information returns being filed. Electronic filing is also an option, particularly for businesses filing multiple forms, and is often required if filing 10 or more information returns. The IRS Filing Information Returns Electronically (FIRE) system is the platform for e-filing 1099 forms, often requiring third-party software or a service provider to create the correctly formatted file.