Working with 1099 employees, also known as independent contractors, is a common practice for businesses looking for flexibility and specialized talent. But along with that freedom comes a few important responsibilities, especially when it comes to tax reporting. If you're hiring or managing 1099 workers in the U.S., here's what you need to know to stay compliant.

Who Needs to File a 1099-NEC?

If you’ve paid an independent contractor $600 or more during the tax year, you're required to file a 1099-NEC (Nonemployee Compensation) form with the IRS. This form reports how much you've paid the contractor, and a copy must also be sent to the individual by January 31 each year. It doesn’t matter if the payment was made by check, cash, or automated payouts; if the amount hits $600 or more, the reporting rule applies.

Keep in mind that this rule generally applies to individuals, partnerships, and LLCs, but not corporations (with a few exceptions, like attorneys).

What Businesses Must Do

Before paying a contractor, businesses should always collect a completed W-9 form. This gives you the contractor’s legal name, address, and Taxpayer Identification Number (TIN). Without this information, you risk filing errors or delays when tax season arrives.

Next, keep accurate records of every payment, whether you’re paying monthly, weekly, or through automated payouts. Modern payroll and payment platforms can help simplify this, tracking totals and generating 1099-NEC forms automatically.

Once it’s time to file, you’ll need to send the form to both the IRS and the contractor. Many companies choose e-filing services for speed and convenience, especially when managing multiple contractors.

Why It Matters

Failing to report payments properly can lead to penalties from the IRS. But more than that, it’s about building trust and transparency with your contractors. When you follow the rules and handle payouts correctly, you help everyone stay on the right track, financially and professionally.

In short, if you're working with 1099 employees, a little preparation now can save you a lot of stress later.

Author Resource:-

Emily Clarke writes about multiple payment platforms, payouts API, marketplace payouts and more. You can find her thoughts at automate payouts blog.