How to Issue a 1099 Form as a Small Business

As a small business owner, you’ve got a lot of responsibilities. You’re busy building your operations, ensuring customer satisfaction, and managing your employees. As your business grows, you may also use independent contractors or freelancers, which means managing 1099 tax forms. With the Internal Revenue Service (IRS) expanding reporting requirements in 2026, it’s critical to understand how to issue 1099s correctly to stay compliant and avoid penalties.

Unlike salaried W-2 employees, contractors require a 1099 form to do their taxes, which you must provide. It might seem intimidating if you've never or don't know how to issue a 1099 form, but there’s no need to worry. This guide simplifies complex IRS steps for your small business, ensuring compliance while limiting distractions. 

What is a 1099 form?

A 1099 form reports income paid to someone who isn’t your employee, such as a freelancer or contractor. For traditional employees, you'd issue a W-2, Wage and Tax Statement, with federal income tax withheld and state income tax withheld from their taxable income each period. Taxes aren't withheld for nonemployees as they handle their own tax payments separately. They aren't included in company profit-sharing plans and must make their own medical and healthcare payments.

Most small businesses issue IRS Form 1099-NEC, Nonemployee Compensation, for payments to contractors that meet or exceed $600 within a year. If you transmit payment via PayPal, Venmo, or similar platforms, those transactions may also generate IRS Form 1099-K. This form reports payments made from: 

• Credit, debit, or stored value cards.

• Payment apps or online marketplaces, also known as third-party settlement organizations (TPSOs), facilitate third-party network transactions.

It's essential to always follow the contractor 1099 form rules and tax reporting process during tax season. 

What is the difference between 1099-MISC and 1099-NEC?

1099 NEC vs MISC: IRS Form 1099-NEC and IRS Form 1099-MISC, Miscellaneous Information, are the most common types of 1099s that you will likely use to pay non-salaried workers. 

• Use Form 1099-NEC to compensate contractors and freelancers for their work. 

• Use Form 1099-MISC for miscellaneous payments for rent, legal fees, prizes, or royalties.

The IRS will continue to use both forms in 2026, so it's best to ensure that you report each payment type on the correct version. 

How to Generate a 1099 Form as a Small Business

There are several ways that small business owners can generate the respective 1099 form they need to issue to contractors. There are traditional paper approaches, online alternatives, and the option to work in-person or online with a virtual tax accountant. 

• IRS Fillable PDFs: Best for small volumes; can be e-filed (for electronic filing) via the IRS FIRE system.

• Accounting Software: Many platforms (QuickBooks, Gusto, Wave) now auto-generate 1099s.

• Virtual Accounting or Small Business 1099 Filing Service: Fastest and most accurate method; 1-800Accountant can manage filings and ensure IRS compliance.

Ready to let the experts handle your 1099 preparation and filing? Schedule a free 30-minute consultation with 1-800Accountant to get started. 

Steps for Issuing a Form 1099

Now that you know what a 1099 is, the methods for generating it, and the differences between common 1099 forms, we break down the steps for small business owners to issue a 1099 form for their contractor workers. 

Step 1. Collect Contractor Information

First, small business owners must gather contractors' information to issue the appropriate Form 1099, which is typically found on IRS Form W-9, Request for Taxpayer Identification Number and Certification. It includes the following. 

• Home address

• Legal name

• Tax identification number (or EIN)

• Reconciled income payments

Avoid corrections and delays by verifying this information by the end of the year, before issuing a 1099. 

Step 2. Record Payments Throughout the Year

It's imperative that you track all contractor payments throughout the year that meet or exceed the $600 threshold. 

While numerous tracking methods are available, the most efficient way to track contractor payments is by using do-it-yourself bookkeeping software, which still requires a significant amount of time and effort, or via 1-800Accountant's affordable, tax-deductible virtual bookkeeping solution, powered by a real bookkeeping expert.

Either route will help you record payments throughout the year. 

Step 3. Complete Copy A and File with the IRS

Next, small business owners must complete the Copy A of Form 1099-NEC, which must be submitted to the IRS by January 31, 2026, regardless of whether you file electronically or by mail. 

When you file paper copies of Form 1099-NEC, you must obtain a physical red form, fill out Copy A, and mail it to the IRS for it to be filed successfully. Note that e-filing is mandatory when filing 10 or more returns. 

Step 4. Send Copy B to Contractors

After completing Copy A form and filing it with the IRS, the next step is to send Copy B to your independent contractors, also by January 31. To do this, you can download and print Copy B from the IRS website and send it to each of your independent contractors.

If your contractors prefer electronic materials, you may send Copy B electronically, provided you have obtained written consent.  

Step 5. Keep Copies for Your Records

Finally, ensure compliance and organization for your small business and financial records by saving a copy of all 1099 forms.

Retain them for at least three years for audit purposes. 

Who Should Receive a 1099?

Any non-employee, individual or partnership, paid $600 or more for services during the year should receive a 1099, but there are exceptions. Payments to corporations, most product purchases, or via credit card (handled by 1099-K issuers), are exempt. However, law firms and medical professionals may still receive 1099s even if they are incorporated.

The IRS has created several versions of the 1099 form. While you will likely use a 1099-MISC or a 1099-NEC, you may require a different variant. Some of the other 1099 tax documents include: 

• 1099-INT for reporting income from interest

• 1099-DIV for reporting cash paid for dividends

• 1099-R for worker pensions and payouts

• 1099-S for reporting payments for real estate transactions

• 1099-G for reporting tax refunds and unemployment benefits

Common 1099 Filing Mistakes to Avoid

If you're handling 1099 preparation and distribution for your business, ensure you avoid these common 1099 filing mistakes. 

• Missing the January 31 deadline.

• Sending incorrect contractor info or Tax ID.

• Filing 1099-MISC instead of 1099-NEC.

• Forgetting to file the 1096 summary for paper submissions.

• Not reporting payments made through Venmo or PayPal properly.

Avoid errors and potential IRS penalties when you let our experts handle your 1099 filings.

Deadlines for 1099 Forms (2026)

While the main 1099 filing deadline is January 31 each year, here are the key deadlines to be aware of for 2026. 

• January 31, 2026: Deadline to issue all 1099-NEC/MISC forms and file with the IRS.

• February 28, 2026: Paper filing deadline for other 1099 types (if applicable).

• March 31, 2026: E-filing deadline for other information returns. 

1099 FAQs

1. What’s the minimum amount for issuing a 1099?

If you pay independent contractors $600 or more within a calendar year, you should issue a 1099 form to them. If you paid them less than $600, you do not need to provide a 1099 form to that worker, although they will still need to report that income to the IRS. 

2. Is a 1099 required for cash payments?

Yes, a 1099 is required for cash payments. Your preferred payment method doesn't matter, as all options qualify, including cash, check, and transfer. So, if your 1099 worker was paid $600 or more within a calendar year, they should receive a 1099 form, regardless of your chosen payment method. 

3. Do I need to issue a 1099 for payments via PayPal or Venmo?

If PayPal, Venmo, or other payment platforms you use issue a 1099-K to your contractors, you won't have to issue an additional 1099. For 2025 and 2026, the reporting threshold is now $ 20,000 or more in gross payments and more than 200 transactions, which was restored by the passage of the One Big Beautiful Bill Act. 

4. What if I file late or make an error?

If you've found an error after issuing a 1099, file a corrected return with the IRS as soon as the issue is discovered. Filing late, however, typically subjects business owners to late filing penalties. 

5. Can my accountant issue 1099s for me?

Yes, EAs, tax professionals, and CPAs with services like 1-800Accountant can prepare and file your 1099s on your behalf. Fees associated with 1099 services are flat-rate and tax-deductible. 

6. What’s the penalty for not issuing a 1099?

The penalty for failing to issue a 1099 can range from $60 to over $680, depending on whether the failure is due to lateness or intentional disregard. Many businesses face IRS penalties promptly, as some will accrue.

7. Do I have to issue a 1099?

If you have paid non-employees $600 or more during the year, it is your obligation to issue the appropriate 1099 form to them and the IRS. 

8. When do I have to issue a 1099 form?

The deadline for issuing 1099 forms is January 31 of each year in advance of tax time. A copy of the form must also be filed with the IRS by that date. If you fail to issue a required 1099, you may be subject to penalties from the IRS.

9. What’s the difference between 1099-NEC and 1099-MISC?

The IRS uses the 1099-MISC and 1099-NEC to report non-employee taxable payments. The 1099-MISC is used to report payments not subject to self-employment tax. Form 1099-NEC is used for reporting non-employee compensation, which is typically subject to the 15.3% self-employment tax that funds Social Security and Medicare.

10. Does an employer have to provide a 1099?

The 1099 form reports non-employment income to the IRS. Businesses must issue a 1099 form to a taxpayer who has received at least $600 or more in non-employment income during the tax year.

11. What’s the minimum amount of money required to issue a 1099? Who qualifies for a 1099?

Businesses must issue a 1099 form to a taxpayer who has received at least $600 in non-employment income during the tax year. Non-employees must report their income to the IRS even if they are paid less than the $600 threshold. 

Simplify 1099 Compliance with 1-800Accountant

Don’t risk penalties or filing mistakes – get help filing your 1099s now with 1-800Accountant, America's leading virtual accounting firm for small businesses. Let our team of experts prepare and submit your 1099s, handle contractor records, and ensure IRS compliance, on time, every time. 

We offer a comprehensive suite of tax-deductible financial services, ideal for small businesses managing 1099 workers. Services include small business taxes and advisory, entity formation, bookkeeping, and payroll, which empowers you to focus your time and energy on what you do best: growing your business.