How to Save Time, Money, & Headaches Filing 1099 Forms

Tax time.

The worst time of the year for accounting teams. You have all of your regular, day-to-day tasks…and also have to wrangle all of the paperwork for your employees and your business. 

The average taxpayer takes 13 hours to prepare for their taxes, according to the IRS. While your W2 employees may be able to file fairly easily, your 1099 contractors are often stuck waiting for forms from multiple clients—and you might be left scrambling to get forms submitted with information from them, too. 

Tax season is a beast. That’s why I chatted with David Henry, Head of Marketing at Wingspan, to talk through how to streamline your filing process and ensure full compliance with IRS regulations—so that you and your contractors can breathe easy. You can watch the entire session here, or read on to get the recap.

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(Pssst…this is part three of our free Contractor Payable course. Check out the first session on contractor onboarding here, and the second session on payments here. Sign up for our newsletter so you don’t miss any of our events.)

Do you need to file a 1099 form?

Let’s start with one of the biggest questions we receive from our customers: Do you even need to file a 1099 form?

The answer, for most contractor relationships, is yes. 

You need to file a 1099 form for:

• Direct payments: If you’ve paid a contractor directly more than $600 in a calendar year, then you need to file a 1099 form. This counts whether you’re using cash, checks, or electronic transfers.
• Indirect payments: Same goes for indirect payments, such as a payment processing company on behalf of a contractor. 
• Payments for both goods and services: Payments for both goods and services, such as materials and labor, are reportable. However, payments solely for goods are not reportable.
• Non-employee compensation: Ensure that the individual receiving the payments is not an employee of your business. This includes any individual who is not considered an employee for tax purposes, such as a freelancer or consultant.

With contractors involved, the only exception to this is through payments from credit cards, Venmo, or PayPal, because these companies legally must already provide that information to the government. Credit cards do this behind-the-scenes, but your contractor will be able to pull a 1099 form from PayPal or Venmo directly. These are popular ways to pay freelancers, but beware—plenty of hidden fees make it unpopular for contractors, even if it does payout right away.

What you need to file a 1099 form

Contractors are accustomed to filling out paperwork as they onboard a client. Create a welcome packet for all new contractors that includes information about your business values, who they’ll be working with, the signed contract, and the rest of their onboarding paperwork, which should include:

• Completed W9 Form: The simplest way to ensure an accurate 1099 filing is to receive a completed and accurate W9 form, which has all the information you need. Do this up front with any new contractor so you can double check line items before the work gets done.
• Correct Name and Address: Make sure the name and address are accurate. Many contractors operate under LLCs or other businesses, so you’ll need the name of the business and the business address in addition to their personal information.
• Taxpayer Identification Number: The TIN is what allows the IRS to track their income and tax liability, so make sure this is accurate (and may be separate from their SSN.) You can do this with the IRS’ TIN matching program. 
• Accurate Payment Information: Report the total number of payments made to each contractor during the calendar year. Remember, it should only be what was paid to the contractor, not the number of invoices. Ensure the payment details are accurate and complete.

Once you have all of this information, you can go ahead and file the 1099-NEC form for each contractor. Then, send a copy to both the IRS and the contractor and—very important— maintain a copy for your records. You’ll want it if any issues come up.

Common 1099 mistakes and how to avoid them

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One mistake we often see is from missing or incorrect information. And misplaced or incorrect information isn’t just a hassle for everyone involved—it also incurs a up to a $310 penalty. Even the most detail-oriented accountant can make mistakes (we all do!) but with taxes, it’s important to double- and triple-check the information from your contractor is accurate.

But the more mundane mistake that many businesses make is leaving their tax preparations to the last minute, which can lead to late filing fees—anywhere from $60 to $630 per late 1099 form, at least in 2023—and worse, upset contractors. There’s nothing more stressful for a contractor than running out of time to file their own taxes because one of their clients “forgot” to mail over the 1099. Don’t be that client. (Though you can gently push back if you did mail it out—yes, 1099s have to be sent via snail mail.)

Extensions aren’t easy to get for 1099 filings, but they do exist under hardship conditions like disaster and death, or if your business is in its first year. If you do need an extension, file for one right away by submitting Form 8809, and let your contractor know. 

How to file 1099 forms for your business

You don’t have to do it all yourself.

If you’re underwater filing W2 paperwork (and if you have thousands of employees, that can get busy fast), you can outsource your 1099 filings to a third-party accounting firm or an all-in-one software solution like Wingspan. With Wingspan, you can automate creation, reconciliation, filing, and delivery of 1099 forms so there’s one place contractors can go for everything they need. File 1099s in one click .