Hiring freelancers is one of the smartest moves a growing business can make.
Expert assistance when you need it. No annual salary. No additional desk. No permanent commitment.
But here’s the catch: For every freelancer you pay, there is paperwork involved. Mess up the 1099 stuff and the IRS will send you a nice penalty notice.
The good news?
Completing 1099s for your contractors is easy when you know what you’re doing. And what you’re doing just changed dramatically for 2026.
Inside This Guide:
- Why Freelancers Are Everywhere Right Now
- What Is A 1099-NEC Form?
- The New $2,000 Rule (Big Change!)
- How To File 1099s For Your Contractors In 5 Steps
- The Biggest 1099 Mistakes To Avoid
Why Freelancers Are Everywhere Right Now
Freelancing is no longer a side gig. It’s a major source of work.
According to one study, 1 in 4 knowledge workers in America freelance now. In fact, America’s overall freelance workforce totalled 72.9 million people in 2025.
That’s a LOT of 1099 forms.
Surely though. You can hire a designer to work on one project. A writer for a month. A developer for one build and none of them is on payroll.
Here’s the problem:
Most entrepreneurs hire a freelancer first, then decide to worry about taxes later. Sometime mid-January-ish.
When it’s already too late.
What Is A 1099-NEC Form?
Form 1099-NEC is the tax form businesses use to report payments to independent contractors. NEC is an abbreviation for “Non-employee Compensation”.
Think of it as the freelancer version of a W-2.
When you pay an employee, you withhold taxes from each paycheck. When you pay a contractor, they’re not. The contractor self pays their own taxes, and the 10-99 NEC just reports to the IRS how much you paid them for the year.
You forward one copy to the contractor and file one copy with the IRS. Seriously, that’s all there is to it.
Most employers submit these forms electronically. In fact, if you file 10 or more information returns annually, the IRS requires you to e-file. The easiest way to manage contractor 1099 filing is with software that lets you enter each contractor’s information once, e-file the 1099-NEC to the IRS, and print or fax copies to recipients all at once. Fewer keystrokes equals fewer mistakes (and fewer IRS notices).
The New $2,000 Rule (Big Change!)
This is the big one.
For years: if you paid a contractor at least $600 during the calendar year, you had to issue a 10 99. That threshold hasn’t budged since the 1950s.
Not anymore.
Under the One Big Beautiful Bill Act, the threshold jumps to $2,000 for payments made starting 1/1/2026. Beginning in 2027, that threshold will be indexed for inflation.
So what does that mean for you?
- Paid a freelancer $1,500 in 2026? No 1099-NEC needed.
- Paid them $2,000 or more? You must file.
- Filing for 2025 payments? The old $600 rule still applies.
But don’t throw your W-9 forms in the bin just yet…
Even if they never receive a form from you, that money is taxable income to the freelancer. Plus, some states may retain the $600 limit as their requirement for state filing. Be sure to check your state’s guidelines before you decide not to issue a form.
FYI: Keep a running total of every contractor throughout the year. That $1,200 freelancer in March can easily exceed $2K come November.
How To File 1099s For Your Contractors In 5 Steps
Ready to get it done? Follow these 5 steps, and you’ll be covered.
Step 1: Get A W-9 Before You Pay
Ask all freelancers to complete a Form W-9 before you pay them one penny. It provides their legal name, address and Tax ID Number (TIN).
Know this first. Pursuing a freelancer for their information in January is unpleasant. Especially if they’re taking on other clients.
Step 2: Make Sure They Really Are A Contractor
Calling someone a contractor doesn’t make them one.
The IRS cares about control. If you control their schedule, provide their tools and direct how the job is done, they may be considered an employee. Messing this up can be known as misclassification, which can result in back taxes and penalties.
Not sure? Speak to a tax professional before you hire.
Step 3: Track Payments All Year
Keep a simple spreadsheet or use your accounting software to log every payment.
Did you know
When you receive payments by credit card or PayPal, those transactions are reported by the credit card/paypal company on a Form 1099- K. You don’t include those payments in your 1099-NEC totals. Otherwise, you are double-reporting that income.
Step 4: File By January 31
The deadline for filing your 1099-NEC is January 31. This includes the copy for the IRS and the copy sent to your contractor.
If January 31 falls on a weekend, then filing will be due the following business day. However, you should not count on this extension. Begin collecting your data early in January.
Step 5: Keep Your Records
File away copies of all 10nines and W-9s that you receive. Keep them for at least 3 years in case the IRS ever inquires.
The Biggest 1099 Mistakes To Avoid
Smart entrepreneurs make mistakes here, too. Here are the errors that plague business owners the most:
- Late forms: Each form has a late penalty fee. The longer you wait, the higher the fee becomes.
- Wrong TIN: The IRS can’t pair the form with one incorrect digit. Verify it against your W-9.
- Confusing the forms: Service payments go on a 1099-NEC. Rent payments, Prizes, etc. go on a 1099-MISC.
- Forgotten state filing: You forgot to file with the state even though the federal form was already organised.
Pretty easy to avoid, right?
The majority of these issues stem from procrastination. Block out time each quarter to go through your contractor list, and you’ll avoid almost all of them.
The Bottom Line On 1099s
Freelancers can save your business significant time and money. If you manage the paperwork involved properly.
To quickly recap:
- Collect a W-9 from every freelancer before you pay them
- Check that each worker really is a contractor
- Track payments all year (and leave out card and PayPal payments)
- Remember the new $2,000 limit for 2026 payments
- File and send your 1099-NEC forms by January 31
Do it annually, and the 1099 season is just another hassle-free chore on your schedule.
No stress. No penalty letters. Just more time to focus on growing your business.