Money-Meals-Magic

When and How to Create 1099s for Contractors

When and How to Create 1099s for Contractors

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by

HLGVentures
in

A Simple Way to Know What Your Business Is Required to Do

Here’s the part most business owners don’t hear up front:

If you pay vendors by credit card or payment processor, you usually don’t need to worry about 1099s at all.

1099 rules depend on three things, but payment method comes first.
Once you start there, the rest becomes much easier.

When and How to Create 1099s for Contractors
When and How to Create 1099s for Contractors

Step 1: How Did You Pay Them? (Start Here)

Skim this first:

If you paid using:

➡️ Stop here. No 1099 required from you.

Why:
When payments go through a third-party processor, the processor handles any required reporting. The Internal Revenue Service only wants income reported once.

Payment method alone can remove your 1099 obligation.

➕ Side note: What about the 1099-K?

If payments are processed through platforms like Square or QuickBooks Payments, the processor may issue a 1099-K to the payee and the IRS — not to you.

Important context (current rules):

  • A 1099-K is generally issued only if both of the following are met:
    • Over $20,000 in gross payments
    • More than 200 transactions in the year
  • Many small businesses will not receive a 1099-K yet — and that’s normal.
  • Whether or not a 1099-K is issued, all income is still reportable.

This is why paying by card or processor removes the need for you to issue a 1099-NEC.

Only continue if you paid by:

  • Check
  • ACH / bank transfer
  • Cash
  • Zelle

If you didn’t use one of these, you can skip the rest of this blog.

Step 2: Collect a W-9 (Before or With First Payment)

Quick version:

  • ✔️ Get a W-9 from the vendor
  • ✔️ Do this early in the relationship
  • ✔️ Keep it on file

Why:
The W-9 tells you how the vendor is taxed, which determines whether a 1099 is even possible.

Step 3: Read the W-9 (This Determines Eligibility)

Ignore “LLC”

LLC status alone does not determine 1099 requirements.

Look at the tax classification box

If the W-9 says:

  • Individual / Sole Proprietor → continue
  • LLC taxed as Partnership → continue
  • LLC taxed as S-Corp → ❌ stop (no 1099)
  • LLC taxed as C-Corp → ❌ stop (no 1099)

Corporations (including S-corps) are generally exempt from 1099 reporting.

Step 4: What Were You Paying For?

Was it for services?

Did someone do work for your business?

Examples:

  • Contractors & freelancers
  • Repairs & maintenance
  • Consulting
  • Virtual assistants
  • Designers, marketers, bookkeepers

If yes → this points to 1099-NEC.

Was it NOT for services?

Examples:

  • Rent
  • Royalties
  • Prizes or awards
  • Legal settlements

If no work was performed → this may point to 1099-MISC.

Step 5: 1099 NEC vs MISC

🧾 1099-NEC (Most Common)

Use when:

  • Payment was for services
  • Vendor is Individual, Sole Prop, or Partnership
  • Total paid is $600+
  • Paid by check / ACH / cash / Zelle

📄 1099-MISC (Less Common)

Use when:

  • Payment was not for services
  • Examples include rent or prizes
  • Same payment-method rules apply

Final Reality Check

If any of the following is true, you do not issue a 1099:

  • Paid by credit card or processor
  • Vendor is an S-Corp or C-Corp
  • Total paid was under $600

This removes most vendors from consideration for most businesses.

If you’re just starting out:

The simplest way to think about 1099s:

  1. How did I pay them?
    → Card/processor = stop
  2. Do I have a W-9?
  3. How are they taxed?
  4. Was it for services or not?

Answer those in order, and the right answer becomes obvious.

 

FAQs

A 1099-NEC is the most commonly used.  This is for services when the vendor is an individual, Sole Prop, or Partnership and the total paid is $600 or more paid by check/ACH/cash/Zelle. 

Usually all the information you need will be on the contractor W-9 and then the dollar amount you paid them for the year in question. You can usually get this via your accounting software.

When you first start working with a contractor, that is the time to request a W-9.  If you have not collected them in the past, then now (whenever you realize you should) is the time!

Since you only need to report anything paid via Check, ACH, Cash, or Zelle, you can usually go to your account that you paid them from and do a search.  The easier way is to use an accounting software and run a report from the specific account.  Make sure you aren’t including credit card or other processor payments.

The deadline for sending 1099s to contractors is January 31st of each year.  You must also file it with the IRS by the same date.

Yes, you give copies to the contractor as well as sending them to the IRS.  There is a form you use as a cover sheet for your business, and then you put copies of the contractor 1099 forms with it.

Yes, you can create and file Form 1099-NEC online using accounting software or e-filing services. Many platforms will generate, file with the Internal Revenue Service, and send copies to contractors for you.

If you miss the deadline to file Form 1099-NEC, the Internal Revenue Service may charge late filing penalties, which increase the longer you wait. Filing as soon as possible can help reduce the penalty.

Payments from check, ACH, cash, and Zelle type payments require 1099 reporting.  Only if over $600.

To correct a mistake on a filed Form 1099-NEC, you’ll need to submit a corrected form to the Internal Revenue Service and provide an updated copy to the contractor. Most e-filing services or accounting software make it easy to file a correction.

Yes, many accounting software such as QuickBooks Online, can help you with 1099 preparation.  Usually there is an extra fee for that so just be aware.

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