How to Prepare and File 1099s

A 1099 reports payments made to non-employees, contractors, freelancers, and vendors. If you paid a contractor $600 or more during the calendar year, you are required to file a 1099-NEC for them by January 31. Missing this deadline or skipping 1099s entirely is one of the most common compliance errors for small businesses.

What You'll Need

• Completed W-9 form from each contractor (collected before payment, not at year-end)
• Total payments made to each contractor during the year
• Access to QBO or your payroll/accounting software
• IRS FIRE system account or a third-party 1099 e-filing service

The Two Most Common 1099 Forms

The W-9 is the foundation: Before paying any contractor, collect a completed W-9 from them. It captures their legal name, business name, address, entity type, and SSN or EIN. Without a W-9, you cannot file the 1099 accurately and may be required to withhold 24% of payments as backup withholding.

Normal Procedure

Step 1: Confirm which vendors need a 1099

Not every vendor receives a 1099. Generally, you issue a 1099-NEC to:

• Individuals (sole proprietors and single-member LLCs) paid $600 or more for services
• Partnerships paid $600 or more for services

You generally do NOT issue a 1099-NEC to:

• Corporations (C-corps or S-corps), with exceptions for payments to attorneys and medical providers regardless of entity type
• Payments made by credit card (the card company issues a 1099-K instead)

Step 2: Verify your W-9 files

For each vendor who needs a 1099, confirm you have a completed W-9 on file. If you don't, contact them now and request it before January. If they refuse to provide a W-9, you are required to apply backup withholding of 24% to any future payments and report accordingly.

Step 3: Generate 1099s in QBO

In QBO:

1. Go to Expenses > Vendors.
2. For each applicable vendor, confirm the Track payments for 1099 checkbox is selected.
3. Go to Taxes > 1099 filings (or Expenses > Contractors > Prepare 1099s).
4. QBO will show you a summary of payments to each 1099-eligible vendor.
5. Verify the amounts match your records.
6. Confirm the vendor's name, address, and SSN/EIN from their W-9.

Step 4: File with the IRS

Deadline: January 31 (to recipient AND to the IRS simultaneously, unlike W-2s, there is no separate IRS deadline for 1099s).

Option A: E-file through QBO

QBO offers 1099 e-filing through a third-party service. Go through the 1099 preparation wizard and select E-file.

Option B: E-file through the IRS FIRE system

Available at irs.gov/fire. Requires registration and uploading a properly formatted file. Best for high volumes.

Option C: Paper filing

Permitted for fewer than 250 forms, but the IRS requires official red-ink forms, you cannot print and submit black-and-white copies. Order official forms from irs.gov or an office supply store.

Step 5: Send copies to recipients

Contractors must receive their copy of the 1099-NEC by January 31. Options:

• Email a PDF copy
• Mail to the address on their W-9

Step 6: California-specific filings

California has additional 1099 reporting requirements through the Franchise Tax Board (FTB):

• If you withheld California backup withholding (7% for California residents), file Form 592-B with the FTB.
• California participates in the IRS Combined Federal/State Filing (CF/SF) program for most 1099 types, if you e-file with the IRS, the data is automatically forwarded to the FTB. Confirm your filing method participates in CF/SF.
• If you're unsure whether California was properly covered, check with your NCO advisor.

Abnormal Procedures

You paid a contractor over $600 and never got a W-9.

Request the W-9 immediately. If they won't provide it, you should apply backup withholding of 24% to any future payments. File the 1099-NEC with whatever information you have and note the missing TIN to avoid penalties for incomplete filing.

You paid a contractor through a payment app (Venmo, PayPal, Zelle).

If you paid via a payment network or credit card, the payment processor may issue a 1099-K to the contractor directly. You still may be required to issue a 1099-NEC if the total paid was $600 or more in cash, check, ACH, or bank transfer, the 1099-K issued by the platform does not eliminate your obligation. Check with your NCO advisor.

You filed a 1099-NEC and then realized you used the wrong amount.

File a corrected 1099-NEC. Mark the CORRECTED box, enter the correct amount, and re-send to both the IRS and the recipient. Do this as quickly as possible to avoid compounding errors.

You missed the January 31 deadline.

File as soon as possible. The IRS penalty for late 1099 filings is $60 to $310 per form, depending on how late they are. Intentional disregard carries a minimum $630 penalty per form with no cap. Filing late is better than not filing at all.

FAQ

What is the difference between a 1099-NEC and a W-2?

A W-2 is for employees, it reports wages and all the taxes you withheld on their behalf. A 1099-NEC is for contractors, it just reports what you paid them; they are responsible for their own taxes. Never issue a 1099-NEC to someone who should have received a W-2.

Do I need to file a 1099-NEC for a one-time payment under $600?

No. The $600 threshold applies to total payments in the calendar year per vendor. If you paid a contractor $200 total across the year, no 1099-NEC is required. If you paid them $200 in three separate transactions, the $600 combined total does trigger the requirement.

What if the contractor has an S-corp or C-corp?

Generally, you do not file a 1099-NEC for corporations. The exception: payments to attorneys for legal services are always reported on a 1099-NEC regardless of the attorney's entity type.

We pay rent to our landlord, does that require a 1099?

Yes, if you paid an individual or unincorporated entity $600 or more in rent during the year, report it on a 1099-MISC (Box 1). Rent paid to a corporation generally does not require a 1099.