TL;DR: If you paid a US contractor $600 or more by ACH, wire, or check this year, you owe them a 1099-NEC by January 31. Payments made by card or through PayPal/Stripe don't count toward your total since the processor reports those separately. The fastest path is collecting a W-9 before you ever pay someone, keeping contractor payments in their own category all year, and using a $4-15/form e-file service instead of the IRS's own filing system.
Why 1099-NEC sneaks up on solo founders
Come January, solo founders who paid contractors during the year run into a filing deadline they usually didn't budget time for. If you paid a US-based contractor, freelancer, or agency $600 or more in a calendar year for services, you generally owe them — and the IRS — a Form 1099-NEC by January 31. Miss it, and the penalty for filing late ranges from $60 to $310 per form depending on how late you are, with a separate, steeper penalty if you never file at all.
The form itself isn't the hard part. Filling out a 1099-NEC once you have the right numbers takes about five minutes per contractor. The hard part is that most solo founders don't track contractor payments in a way that makes those numbers easy to find in December. You paid your designer through Mercury bill pay in March, your contract developer through Wise in July, and a marketing consultant by wire in October — and none of those systems automatically label the payee as a 1099 contractor or store their taxpayer ID for you.
It's also worth pausing on who actually counts as a contractor in the first place, since 1099-NEC only applies to people you're not treating as employees. If someone works set hours, uses equipment you provide, takes direction on how (not just what) to do the work, and has no other clients, the IRS may view that as an employee relationship regardless of what you call it on paper — and misclassification carries its own penalties separate from anything on this checklist. Most solo founders paying freelance developers, designers, or consultants by the project are on solid ground, but if a relationship has started to look more like a part-time employee than a contractor, that's worth a conversation with a CPA before you assume a 1099-NEC is even the right form.
Collect W-9s before you pay, not after
The single biggest time-saver: get a completed Form W-9 from a contractor before you send the first payment, not when you're scrambling in January. A W-9 gives you their legal name, business classification, and taxpayer ID (SSN or EIN) — exactly what goes in the payee fields on a 1099-NEC. Chasing a freelancer who did $1,500 of work for you back in February and has since gone quiet is a genuinely bad way to spend a January afternoon, and it happens to almost everyone who skips this step.
Build W-9 collection into your onboarding, not your bookkeeping. Add "please send a completed W-9" as a line in your contractor agreement or your first invoice email, and don't release the first payment until it's in hand. A plain PDF attached to a Google Form or a DocuSign/HelloSign template both work fine — you don't need anything fancy, you just need it to happen before the invoice, not after.
For contractors outside the US, the form is different. They fill out a W-8BEN (individuals) or W-8BEN-E (entities) instead of a W-9, and in most cases you don't issue them a 1099-NEC at all, since that form covers payments to US persons. Foreign contractor payments have their own reporting rules that can involve Form 1042-S if you're withholding tax on US-source income — for most solo founders paying overseas contractors for work performed entirely outside the US, no 1099 is required, but if a contractor did any work while physically in the US, that's a question for a CPA, not a blog post.
The $600 threshold: who's in, who's out
The threshold sounds simple and then turns out to have edge cases. Here's what actually determines whether a given contractor needs a 1099-NEC from you:
- The $600 is per contractor, per calendar year, added up across every payment — not per invoice or per project.
- It applies to services, not goods. Buying a laptop from someone doesn't trigger a 1099.
- It applies to individuals, sole proprietors, partnerships, and most LLCs. Payments to a business taxed as a C-corp or S-corp are generally exempt — the W-9 they send you shows their tax classification in box 3.
- Payments made by credit card, debit card, or a third-party network like PayPal, Stripe, or Venmo for Business are excluded from your 1099-NEC total. The processor reports those separately on a Form 1099-K.
- Payments made by ACH transfer, wire, check, or cash count toward the $600 and the reporting obligation is yours, not a processor's.
Pull a clean contractor-payments report from your books
If your books have been consistently categorized throughout the year, this step takes about 20 minutes: filter your ledger for the "Contractor Payments" or "Professional Services" category, exclude anything paid by card or PayPal, and sum by payee. If your books are a pile of "Uncategorized Expense" entries and Mercury transactions that mix personal and business spending, this step can eat an entire weekend, because you're not just filtering — you're reconstructing.
In QuickBooks Online, there's a built-in 1099 Contractor Report, but it only populates correctly if you tagged vendors as 1099-eligible when you first set them up. Tagging retroactively in December means you're manually checking each vendor's running total against your bank feed line by line anyway, which defeats the point of having a report. Xero doesn't have native 1099 tracking in its US product at all — you're either building the report in a spreadsheet from your bank export or leaning on a third-party add-on like Track1099's Xero integration to pull it together.
This is the kind of task that exposes whether your categorization habits held up all year. Prosper's Plaid sync pulls Mercury and Wise transactions in automatically and auto-categorizes them against your chart of accounts, flagging anything it isn't confident about for you to review instead of guessing. At $29/mo, that turns the December contractor report into a five-minute filter instead of a re-categorization project — assuming you kept a consistent "Contractor Payments" category going all year, which is setup work you have to do at some point regardless of which tool you use.
Whatever tool produces your final list, export it and keep a copy alongside the W-9s and the 1099s you eventually file. The IRS generally recommends keeping information return records for at least three years, and if a contractor ever disputes an amount or you need to file a correction, having the underlying transaction list — not just the summary total — is what actually resolves the question quickly.
Filing options and what they actually cost
Once you have your contractor list and totals, there are three ways to file:
- IRS FIRE system (Filing Information Returns Electronically) — free, but built for accountants filing hundreds of returns at once. The interface looks like it hasn't changed since the 1990s, and you need a Transmitter Control Code (TCC) that can take weeks to process if you don't already have one.
- Third-party e-file services (Track1099, Tax1099, Formstack Forms, e-File.com) — roughly $4 to $15 per form depending on volume and whether you add state filing, email delivery to contractors, or mailed copies. For a solo founder with 3-8 contractors, this usually lands in the $20-80 range total.
- Paper filing — allowed if you have fewer than 10 total information returns for the year, after a 2024 IRS rule change lowered the e-file mandate threshold from 250 down to 10. Paper filing means ordering the official red-ink Copy A forms, since you can't print those from a downloaded PDF.
Picking between the e-file services
For most solo founders with a handful of contractors, a third-party e-file service beats both the free IRS system and paper filing on time spent, even after accounting for the per-form cost. The core workflow is the same across Track1099, Tax1099, and similar services: you upload a CSV with payee names, taxpayer IDs, addresses, and amounts, review the pre-filled forms, and submit. The differences show up in the details — some charge extra for contractor email delivery versus mailed paper copies, some bundle state filing into the base price and some charge per state, and turnaround time for corrections varies if you catch a typo after submitting.
If you're only filing a handful of forms, the price difference between services is usually a few dollars total, so it's worth checking whether the service already integrates with your bookkeeping software before comparing per-form pricing line by line. An integration that lets you export your contractor list directly, instead of retyping names and amounts into a new upload template, saves more time than a marginally cheaper per-form rate.
State filing rules and deadlines that actually matter
Federal filing doesn't always cover you at the state level. Roughly half of US states participate in the IRS's Combined Federal/State Filing (CF/SF) Program, which means if you file federally and your contractor's address is in a CF/SF state, the IRS forwards a copy on your behalf. Several states, including Pennsylvania, require a separate, direct state filing regardless of CF/SF participation, and a handful set their own minimum thresholds that differ from the federal $600 figure.
The safest approach is to check the specific state Department of Revenue page for each state where you have a contractor, since these rules shift from year to year and a blog post is a bad place to get state-specific tax guidance. Most e-file services will flag at checkout whether a given state needs a separate submission and handle it for a few extra dollars per form.
The date to circle: January 31 is the deadline for both sending Copy B to your contractor and filing Copy A with the IRS (and most states) for 1099-NEC — unlike some other information returns, there's no extra 30 days between the two anymore. If January 31 lands on a weekend, the deadline shifts to the next business day, but don't count on that buying you real time to get organized.
Prosper is bookkeeping software and does not provide tax or legal advice. Consult a qualified professional for tax advice. Results vary based on transaction volume, data quality, and workflow setup.