How to Fire a 1099 Contractor
Ending a business relationship requires careful handling of federal compliance obligations. Ensure a smooth transition while meeting all legal requirements.
Compliance Checklist
Key Point
Unlike employees, independent contractors can typically be terminated at any time, subject to the terms of your contract. However, you still have federal compliance obligations for work already performed and reporting requirements for the tax year.
Contract Terms
Review your contract for termination clauses and notice requirements.
- Check if contract specifies termination procedures
- Follow any required notice periods
- Understand any penalties or fees for early termination
Final Payment
Ensure all work is completed and final payment is made.
- Complete final payment for work performed
- Get confirmation that all deliverables are received
- Keep records of final payment date
1099 Filing
File required 1099 forms even if the relationship ends mid-year.
- If payments totaled $600 or more, file 1099-NEC
- File by January 31st for the previous tax year
- Send Copy B to the contractor by January 31st
Documentation
Keep records of the termination and final payments.
- Document the termination date and reason
- Keep final payment records
- Retain all documentation for at least 4 years
Termination Best Practices
Before
- Review contract clauses
- Pay for completed work
- Collect deliverables
After
- File 1099-NEC ($600+)
- Keep records (4 years)
- Update internal files