How do 1099 contractors get paid?
Unlike employees, 1099 contractors receive the full amount they invoice with no taxes withheld. You’re not responsible for withholding income tax, Social Security, or Medicare. The contractor handles their own tax obligations. Your job is to pay them what you agreed to pay and document it properly.
Before you pay anyone as a contractor, get a completed W-9 form. This gives you their legal name, address, and tax identification number. You need this information to file a 1099-NEC at year end if you pay them $600 or more. Collecting the W-9 upfront saves a scramble in January when you’re trying to track down contractor information.
Payment methods are flexible. You can pay by check, direct deposit, Venmo, PayPal, Zelle, or any other method you both agree on. Some contractors prefer direct deposit for speed. Others want checks for their records. Payment apps work fine for smaller amounts but keep in mind that some platforms generate their own 1099-K forms, which can create confusion if you’re also issuing a 1099-NEC.
Track every contractor payment. Record the contractor name, date, amount, and what the payment was for. This information feeds directly into your 1099 preparation. A good bookkeeping service keeps these records organized automatically, making year-end reporting straightforward.
Payment terms depend on what you negotiate. Some contractors expect payment upon completion. Others invoice with net-30 terms. There’s no legal requirement like there is with payroll. You pay according to your agreement. Just make sure you actually pay on time. Contractors talk to each other, and a reputation for slow payment makes it harder to find good help.
The 1099-NEC deadline is January 31 for the prior year. You send copies to each contractor who received $600 or more and file with the IRS. Miss the deadline and penalties start at $60 per form and go up from there.
If you’re working with subcontractors regularly, especially in construction and trades, having clean books makes 1099 season straightforward. The records are already there. If you’re piecing things together from bank statements and trying to remember who that $2,400 payment went to, you’re making it harder than it needs to be.
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