Plenty of small businesses have no employees and still owe the IRS paperwork every January. A designer, a bookkeeper and a part-time developer all paid by bank transfer can add up to three tax forms, three deadlines and one penalty notice if the details slip.
Full payroll software is built for W-2 staff, withholding and state unemployment accounts. If everyone you pay is a contractor, most of that machinery is dead weight. The question is how little you can get away with.
The Short Answer Is a W-9 Now and IRIS in January
- ● The 1099-NEC line is $2,000 for 2026 work
- ● Forms are due to the IRS and the payee on January 31
- ● Ten information returns in total means e-file
If you pay only a few contractors, the free IRS IRIS portal is enough. Collect a W-9 before the first payment and track totals by contractor. For 2026 work, a Form 1099-NEC is due January 31 once a contractor reaches $2,000. QuickBooks Contractor Payments costs $25 a month for up to 20 contractors as of October 2026, and it pays off when the roster is long or changes often.
That split matters more than the brand you pick. A business paying three regular freelancers can do the whole job in an afternoon with free tools. A business paying fifteen rotating freelancers will lose more time to chasing addresses than a contractor plan costs.
The Three Numbers Behind Every 1099-NEC Decision
Three figures from the current IRS instructions decide most of what follows. Read them before you compare any software.
The reporting line is now $2,000. The IRS instructions say the minimum threshold rose to $2,000 for tax years beginning after 2025, with inflation adjustments possible from 2027. So the forms you file in early 2027 cover contractors you paid $2,000 or more during 2026.
The deadline is January 31 for both copies. The instructions say you must furnish the payee statement and file with the IRS by January 31. There is no later IRS filing date to lean on, as there is for some other 1099 forms.
Ten returns in total forces e-filing. Treasury Decision 9972 lowered the electronic filing threshold to 10, counted by adding up all your information returns together. Five 1099-NEC forms plus five other information returns, such as W-2 forms, already put you over.
What Changes Now That the Line Is $2,000
The higher threshold quietly removes a lot of small jobs from the paperwork. A one-off logo for $800 or a $1,200 website fix no longer needs a 1099-NEC on its own.
It does not remove the need to track. The line applies to the total you paid that person during the year, not to each invoice. Three $700 jobs for the same copywriter add up to $2,100, which crosses the line.
The practical rule is to record every contractor payment against a named vendor from the start. Accounting software does this automatically if you tag the payee as a 1099 vendor. A spreadsheet works too, as long as one column holds the contractor name exactly as it appears on the W-9.
Payments That Never Belong on a 1099-NEC
How you pay changes who reports. IRS instructions say payments made with a credit card or payment card, along with certain third-party network transactions, are not reported on Form 1099-NEC.
Those payments are reported on Form 1099-K by the payment settlement entity, meaning the card processor or network. If you paid a contractor’s invoice by business credit card, that amount does not count toward your 1099-NEC total for them.
Bank transfers, checks, cash and direct deposit through a payroll tool are the payments that do count. Mixed payers should keep the two buckets apart in their books, or they will over-report in January.
| Payment method | Counts toward 1099-NEC? | Who reports it |
|---|---|---|
| ACH or wire from your business account | Yes | You, on Form 1099-NEC |
| Paper check | Yes | You, on Form 1099-NEC |
| Direct deposit through a contractor plan | Yes | You, usually filed by the software |
| Business credit card | No | Card processor, on Form 1099-K |
| Payment app business transaction | Usually no | The network, on Form 1099-K |
Five Ways to Pay and File, Compared
- ● IRIS files for free but does not pay anyone
- ● QuickBooks pays and files for $25 a month
- ● Square pays for $6 per person but skips IRS filing
Paying contractors and filing for them are two separate jobs. Some tools do both, some do only one, and the gap between them is where January surprises come from.
| Option | Price as of October 2026 | Pays contractors? | Files 1099-NEC with IRS? | Best for |
|---|---|---|---|---|
| IRS IRIS Taxpayer Portal | Free | No | Yes, up to 100 returns at a time | Few contractors, paid by bank transfer |
| QuickBooks Contractor Payments | $25 a month, 20 contractors included, $2 each after | Yes, by direct deposit | Yes, unlimited 1099 e-filing | Frequent payments, changing roster |
| Square Payroll contractor-only | $6 a month per person paid | Yes | No federal filing included | Already on Square, filing done elsewhere |
| Full payroll plan such as Gusto or OnPay | Check the vendor pricing page | Yes | Usually included | Contractors plus W-2 employees |
| Accountant or bookkeeper | Quote-based | No | Yes, as a service | Owners who hand off year-end anyway |
The table hides one trap. Square says its contractor-only plan does not include automated federal tax payments and filings, though it does deliver digital W-2 and 1099 copies. Square charges $3 per form per year for mailed paper copies. If you choose it, you still need IRIS or an accountant to file with the IRS.
QuickBooks advertised 50% off for the first 3 months on its contractor plan as of October 2026, so the first quarter can cost $12.50 a month. Confirm current pricing on the official site, since contractor plans change more often than core payroll plans.
How the Free IRS Route Works in Practice
IRIS is the IRS system for e-filing information returns. Its Taxpayer Portal is free and web-based, and Form 1099-NEC is on its list of supported forms.
The catch is setup time. You need an IRIS Transmitter Control Code, a 5-digit code you apply for before you can file. Apply in the fall, not on January 28, because approval is not instant.
Once you have it, the portal lets you key returns in by hand or upload a file. The IRS says the Taxpayer Portal handles up to 100 returns at a time. That is far more than a small business usually needs, so volume is rarely the limit.
What IRIS does not do is move money. You still pay each contractor from your bank, and you still mail or email the payee copy yourself. For three or four regular freelancers, that is a short list of chores. For twenty, it becomes a project.
Where a Missing W-9 Gets Expensive
The W-9 is the single document that makes the rest painless. It gives you the legal name, address, tax classification and taxpayer identification number you need on the 1099-NEC.
Skipping it has a defined cost. The IRS says payers must apply backup withholding at 24% when a payee fails to provide a correct taxpayer identification number. On a $3,000 invoice, that is $720 you withhold and send to the IRS instead of to the contractor.
Most contractors would rather fill in a form than lose a quarter of an invoice. Make the W-9 part of onboarding, next to the contract and the first purchase order. Contractor payment software usually collects it during invite, which is one of its quieter advantages.
A Worked Year for a Small Design Studio
Picture a studio that pays four contractors during 2026 by bank transfer. A developer earns $9,600 across the year, a copywriter $4,200, an illustrator $2,400 and a photographer $1,800 for a single shoot.
Only three of them cross the $2,000 line, so the studio owes three Forms 1099-NEC by January 31, 2027. The photographer needs no form, although the payment still belongs in the books.
Assume the developer, copywriter and illustrator are each paid in all 12 months, and prices stay where they were in October 2026.
| Route | Calculation | Cost for 2026 |
|---|---|---|
| IRIS plus bank transfers | Portal is free | $0 |
| QuickBooks Contractor Payments, full price | $25 x 12 months | $300 |
| QuickBooks with the 3-month offer | $12.50 x 3 + $25 x 9 | $262.50 |
| Square contractor-only, three people monthly | $6 x 3 people x 12 months | $216, plus IRS filing elsewhere |
For this studio, free filing wins on cost by a clear margin. The software plans buy convenience: automatic W-9 collection, direct deposit and forms that fill themselves. If the owner spends more than a few hours a year on contractor admin, $300 is cheap. If not, it is money spent on a problem they do not have.
Which Contractor Setup Fits Your Business
- ● Two or three contractors can stay manual
- ● A rotating bench of freelancers needs software
- ● Contractors plus employees means full payroll
Headcount and churn decide this better than features do. Match your situation to the closest line below.
- Two or three steady contractors, paid by bank transfer: Collect W-9s, track totals in your accounting software and file through IRIS. Total software cost stays at $0.
- A rotating bench of freelancers, many under $2,000: A contractor plan earns its fee by tracking totals and filing only the forms that cross the line. QuickBooks covers 20 contractors before the $2 add-on starts.
- You already run your shop on Square: The contractor-only plan is a tidy way to pay people, but budget for IRIS or an accountant to file with the IRS.
- Contractors plus your first W-2 employee: Move to full payroll, which handles both. Our guide on doing payroll yourself versus using software for a first employee walks through that jump.
- You already pay an accountant for year-end: Ask whether 1099 filing is in the engagement. Hand over clean W-9s and payment totals, as covered in how to hand your books to an accountant at year-end.
A Fall Checklist That Prevents January Panic
Most 1099 trouble is a data problem discovered too late. A short review in October or November fixes it while contractors still answer email.
- List every contractor paid by bank transfer, check or cash this year, with running totals.
- Flag anyone at or near $2,000, including people with several small invoices.
- Confirm a signed W-9 exists for each flagged name and that the name matches the bank records.
- Count all your information returns together to see whether you are at 10 and must e-file.
- Apply for the IRIS code now if you plan to file for free.
If you decide software is worth it, compare plans on our broader payroll software comparison before signing an annual contract. Contractor-only plans are easy to outgrow once you hire.
The Paperwork Is Small When It Starts Early
Paying contractors without full payroll is entirely workable for a small business. The IRS gives you a free filing portal, the $2,000 line trims away small jobs, and a W-9 at onboarding closes the biggest risk.
Software becomes worth paying for when the roster is long, changes often, or shares the books with W-2 staff. Until then, a tidy vendor list and an IRIS code do the job. For the authoritative rules, read the current IRS instructions for Forms 1099-MISC and 1099-NEC and the IRIS e-file page.
FAQ
Do I have to send a 1099-NEC to a contractor I paid $1,500 this year?
Not for work paid in 2026. IRS instructions now set the Form 1099-NEC threshold at $2,000 for tax years beginning after 2025, so a contractor paid $1,500 during 2026 does not need a 1099-NEC from you. Keep the invoice and payment record anyway, because a second job later in the year can push the total over the line.
Can a small business file 1099-NEC forms online for free?
Yes. The IRS runs a free web portal called IRIS that e-files Form 1099-NEC. You need a 5-digit IRIS Transmitter Control Code first, and the portal accepts up to 100 returns at a time, which covers almost every small business.
What happens if a contractor will not give me a W-9?
Ask for a signed Form W-9 before the first payment, not in January. If a contractor never gives you a correct taxpayer identification number, the IRS expects you to apply backup withholding at 24% on future payments and send that money to the IRS.
Do I send a 1099-NEC if I paid a contractor through PayPal or a credit card?
Usually not. IRS instructions say payments made with a credit card, a payment card or certain third-party networks are not reported on Form 1099-NEC. The card processor or payment network handles those on Form 1099-K instead, so only your direct bank transfers, checks and cash count toward the contractor total.
When are 1099-NEC forms due?
January 31. The same date applies to the copy you file with the IRS and the copy you furnish to the contractor. When January 31 lands on a weekend, check the current IRS instructions for the next business day rule.
Sources
- IRS Instructions for Forms 1099-MISC and 1099-NEC — checked 2026-10-09
- IRS - E-file information returns with IRIS — checked 2026-10-09
- IRS - Backup withholding — checked 2026-10-09
- QuickBooks Contractor Payments — checked 2026-10-09
- Square Payroll pricing — checked 2026-10-09
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How this article was made: it was drafted with AI assistance from the official sources listed above, and its figures were checked against those pages on the dates shown. It is not based on personal hands-on testing.
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