1099 Contractors: Who They Are and How They Benefit Your Business
When you start a business, you’re bombarded with new terms, forms, and acronyms that you’re expected to understand right away. One of the most common and important ones is "1099 contractor"—and if you’re not familiar with what that means, you’re not alone.
In this blog, we’ll break down what a 1099 contractor is, how hiring one impacts your small business, and what steps you need to take to stay IRS-compliant.
What Is a 1099 Contractor?
A 1099 contractor—also known as an independent contractor or subcontractor—is a self-employed individual who provides services to your business but is not classified as an employee. Unlike employees who receive a W-2 form, independent contractors receive a 1099-NEC form, which reports how much you paid them during the year.
Common examples of 1099 subcontractors include:
Freelance graphic designers
IT specialists or developers
Marketing or business consultants
Copywriters and content creators
Event or product photographers
These professionals manage their own business operations and are responsible for paying their own self-employment taxes.
When Do You Need to File a 1099 for a Contractor?
If your business pays a 1099 contractor $600 or more in a calendar year, the IRS requires you to issue a Form 1099-NEC. This form must be sent to the contractor and filed with the IRS by January 31st of the following year.
To remain compliant:
Collect a W-9 form from every contractor before they begin work.
Keep clear records of all payments made.
Issue 1099-NEC forms by the deadline.
Why Small Businesses Hire 1099 Contractors
Hiring independent contractors offers flexibility and cost savings. You can bring in expert help without the overhead of hiring a full-time employee. Businesses often choose 1099 subcontractors to:
Fill short-term gaps in staffing
Handle specialized tasks outside the core business
Scale without adding long-term payroll expenses
Because 1099 contractors are not employees, you don’t need to provide benefits, withhold taxes, or pay employment taxes. But it’s crucial to handle contractor payments and documentation properly.
Bookkeeping Tips for Managing 1099 Subcontractors
Accurate bookkeeping is essential when working with 1099 contractors. Here are a few tips to make the process smoother:
Use bookkeeping software like QuickBooks to track contractor payments.
Categorize payments clearly as subcontractor or independent contractor expenses.
Reconcile accounts monthly to ensure all transactions are recorded.
Store W-9s and 1099-NEC copies in a secure, organized location.
Proper recordkeeping not only helps you avoid IRS penalties but also provides better financial clarity and improves cash flow management.
Avoid 1099 Filing Mistakes
Some of the most common mistakes small business owners make with 1099 contractors include:
Failing to collect a W-9 before payment
Mixing up contractor and employee classifications
Missing the January 31 filing deadline
Forgetting to report payments made through checks, cash, or direct deposit (even if some were via PayPal or Venmo)
Avoiding these errors keeps your business compliant and prevents tax-season headaches.
Need Help Managing Contractor Payments?
If you're feeling overwhelmed by contractor tracking or unsure about 1099 compliance, you're not alone. Many small business owners struggle with this area. A bookkeeper can help you:
Set up a system for contractor payments
Keep your records audit-ready
File your 1099s on time
Staying ahead of your 1099 obligations means fewer surprises come tax time—and more confidence running your business.
If you want help cleaning up your records or getting your 1099s in order, send me a message. Let’s make contractor compliance one less thing you have to stress about.
Sources:
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined
