Form 1099-NEC—just say the phrase in a room of finance and operations leaders, and you’ll likely be met with a collective groan. The document is an administrative nightmare for businesses that engage independent contractors.
I learned firsthand how stressful and complicated the 1099 filing process is when I became a freelancer at the end of 2016. While I loved the freedom to work on my terms, the administrative side of freelancing was brutal—particularly in January.
The companies I worked with rarely notified me when they sent a paycheck, much less my 1099 form. January became a month-long quest to track down 1099-NEC documents, then meticulously checking for errors to ensure a timely tax filing.
This experience opened my eyes to the broader issue of 1099 filing for independent contractors. Conversations with fellow freelancers revealed a common struggle – hours wasted trying to reverse engineer pay stubs just so we could file our taxes properly. The more I delved into the issue, the clearer it became that the problem stemmed from the underlying infrastructure of flexible work
So, how did 1099 filing become such a nightmare?
The IRS has tried to smooth out the 1099 filing process since it began in 1918. In 1983, they phased out the 1099-NEC and replaced it with the 1099-MISC, aiming for a more efficient system. However, this change brought its own set of complexities as income types diversified.
Fast forward to 2018, and the IRS brought back the 1099-NEC—but this didn’t make filing any easier for businesses relying on independent workers. The process makes finance, HR, and operation teams want to pull their hair out every winter. They stay at work late, manually preparing forms and communicating back and forth to meet the IRS' January 31 deadline. The stress of accurate filing to avoid IRS fines only adds to the chaos.
Before pointing fingers at the form, know it isn’t to blame for the chaos. The true culprits are the outdated technology and processes surrounding independent contractor management.
The administrative burden of 1099 filing
Every time a company wants to work with a freelancer, they must complete a never-ending to-do list for 1099-NEC filing—like collecting e-signatures, background checks, and banking information. Businesses large and small manually repeat these checklists for each contractor, which places an enormous burden on HR, finance, and operations teams.
The process is even more overbearing for companies with hundreds or thousands of contractors. For every worker, these businesses will manually:
- Request a W-9 from the contractor
- Verify the Taxpayer Identification Number (TIN)
- Calculate each non-employees full payment total
- Communicate with each contractor if there is missing information
- File a 1099-NEC form for each contractor with the IRS
It’s no surprise many companies struggle to deliver accurate 1099 forms on time to their contractors with so much work on their plate. If these businesses don’t meet the IRS’ filing deadline, they face IRS fines ranging from $60 to $630 per form depending on how late their submissions are. Manual filing also increases the odds of errors in tax documents. For example, a misplaced comma or an incorrect TIN in the reported data could lead to a $310 penalty.
Audit your 1099 filing processes for a smooth end of month
Far too many companies are working with independent contractors less (or not at all) because of 1099 filing complexities. That’s a shame considering how contingent workforces drive the majority of revenue for so many organizations.
The good news is you don’t have to choose between the administrative headache of filing and working with contractors. Instead, audit your 1099 filing process to figure out areas of improvement.
- Identify roadblocks in your current 1099 filing process. Talk with your team members to understand what is handled manually and what aspects of filing typically bring issues. For example, your 1099-NEC forms may often have errors, or your HR team may spend hours requesting information from contractors.
- Streamline manual steps and minimize errors with automation. Check whether your existing tools can automate filing tasks you’re currently handling manually—like requesting W-9s from contractors, pulling data from tools to complete 1099 forms, and filing with the IRS.
- Look for cost-effective ways to outsource some or all aspects of 1099 filing. You might hire accountants or adopt software that can automatically generate 1099-NEC forms and offer support to contractors.
Imagining a smooth 1099 season may seem far-fetched, especially amidst the January filing frenzy. However, I’ve spoken to many finance and operations leaders who easily handle the process, and their companies engage thousands of contractors. After these conversations, I’m confident other business leaders can do the same by rethinking their 1099 approach.
If you’re interested in getting your 2023 1099 filed for free, we’re running a limited-time promotion that ends Friday (January 19th).
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