"Payroll for 1099" is a search that mixes two different things. Payroll is how you pay employees: you work out wages, withhold income tax, Social Security and Medicare, pay the employer's share, and give the employee a pay stub and, at year end, a Form W-2. Independent contractors sit outside all of that. The IRS says a business that pays an independent contractor is generally not required to withhold taxes; the contractor pays their own self-employment tax.
So the real question is what a business has to do when it pays a contractor, and how that differs from paying staff. This post covers the steps for 2026, the paperwork each side keeps, and the point where a "contractor" is really an employee.
Contractor or employee: check this first
Everything below assumes the worker is genuinely an independent contractor. The IRS general rule: someone is an independent contractor if the person paying them has the right to control or direct only the result of the work, not what will be done and how it will be done. If you set the hours, supply the tools, train the person and direct how the job is done, you are probably their employer, whatever the agreement says.
The Department of Labor applies its own economic-reality test under the Fair Labor Standards Act and warns that misclassified employees can miss out on minimum wage and overtime pay they are entitled to. If you are unsure, the IRS will make a formal determination on Form SS-8.
| Employee | Independent contractor | |
|---|---|---|
| How they are paid | Wages through payroll | Against an invoice or agreed fee |
| Federal income tax withheld | Yes, from Form W-4 | No (unless backup withholding applies) |
| Social Security and Medicare | Withheld, plus the employer's matching share | Paid by the contractor as self-employment tax |
| Federal unemployment tax (FUTA) | Employer pays | None |
| Form you collect at the start | Form W-4 and Form I-9 | Form W-9 |
| Record each payday | Pay stub | The paid invoice and your payment record |
| Year-end form | Form W-2 | Form 1099-NEC, if $2,000 or more in 2026 |
How to pay a 1099 contractor, step by step
- Agree the work and the fee in writing: what is delivered, by when, and how it is invoiced. Keep it about results, not hours and supervision.
- Ask for a Form W-9 before you pay anything. The contractor fills it in with their name, business type and taxpayer identification number (SSN or EIN) and gives it to you. You keep it; it is not sent to the IRS.
- Pay against invoices. Bank transfer, check or a payments app all work. Pay the full invoice: there is nothing to withhold for a contractor who gave you a valid TIN.
- Keep the paid invoice and your proof of payment together, in date order, for each contractor. This is your record of what you paid and when.
- Add up each contractor's payments for the calendar year in January. If a contractor's total for services is $2,000 or more for 2026, you owe them a Form 1099-NEC.
- Give the contractor their copy and file with the IRS by January 31, or the next business day when that falls on a weekend. For 2026 payments that is 1 February 2027 (31 January 2027 is a Sunday).
Payments to most corporations don't need a 1099-NEC. Attorneys' fees are an exception: they are reported even when the law firm is a corporation. The W-9 tells you how the contractor is set up.
The 1099-NEC threshold is $2,000 from 2026
For years the 1099-NEC threshold was $600. The IRS instructions for Forms 1099-MISC and 1099-NEC (December 2026 revision) say that for tax years beginning after 2025 the minimum reporting threshold rose to $2,000, under Public Law 119-21, and may be adjusted for inflation from 2027. The same $2,000 applies to backup withholding on those payments.
| Payments made in | Report if the year's total is | Due to contractor and IRS |
|---|---|---|
| 2025 | $600 or more | 2 February 2026 |
| 2026 | $2,000 or more | 1 February 2027 |
| 2027 onward | $2,000, possibly inflation-adjusted | 31 January of the next year, or the next business day |
Box 1a covers fees, commissions, prizes and awards for services performed as a nonemployee, and other pay for services to your business by someone who is not your employee. Rent, royalties and some other payments go on Form 1099-MISC instead.
Backup withholding: the one time you do withhold
If a contractor won't give you a correct taxpayer identification number, the IRS requires you to withhold from reportable payments at the backup withholding rate, currently 24 percent, and pay it to the IRS. That amount then appears in box 4 of their 1099-NEC. This is the main reason to collect the W-9 before the first payment rather than in January.
Why a contractor shouldn't get a pay stub
A pay stub shows wages and the tax withheld from them. A contractor has no withholding, so a pay stub would show a gross amount, empty tax lines and the word "employee" on a person you have decided is not one. That contradicts your own classification and helps nobody at tax time.
What a contractor needs from you is simple: a paid invoice or a payment confirmation for each payment, and Form 1099-NEC at year end when the total reaches the threshold. If you want to be helpful, send a short year-end statement listing each payment and date, which matches the 1099-NEC total.
Where PayDocs fits
PayDocs makes documents from your own records. For contractors that means the 1099-NEC generator: you enter the payer and recipient details and the year's total, preview it free, and get the recipient copies as a PDF. The recipient's TIN shows as the last four digits only, which the IRS allows on recipient copies. For people on your payroll, the pay stub and W-2 generators make their documents.
PayDocs doesn't file with the IRS. It never produces Copy A, the copy filed with the IRS, so you still file through the IRS's own systems or other filing software. It doesn't decide whether someone is a contractor, and its documents are not proof of income.
Questions
Do I need payroll software to pay a 1099 contractor?
No. Contractors are paid against invoices with no tax withheld, so there is no payroll to run. You need a Form W-9 on file and, where the year's payments reach the threshold, a Form 1099-NEC.
What is the 1099-NEC threshold for 2026?
$2,000. The IRS instructions say the reporting threshold rose from $600 to $2,000 for tax years beginning after 2025, and may be adjusted for inflation from 2027.
Can I give a contractor a pay stub?
It isn't the right document. A pay stub records wages and withholding for an employee. A contractor's record is the paid invoice, and Form 1099-NEC at year end where required.
When do I withhold tax from a contractor?
Only for backup withholding: if the contractor doesn't give you a correct taxpayer identification number, you withhold 24 percent from reportable payments and pay it to the IRS.
Sources
- IRS: Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026)
- IRS: Independent contractor defined
- IRS: Backup withholding
- IRS: About Form W-9
- US Department of Labor: Misclassification of employees as independent contractors
Sources checked October 4, 2026. This article explains how pay documents work; it is not tax or legal advice.
