How to Hire a 1099 Contractor (Federal)
A step-by-step guide to properly hiring and working with independent contractors under federal rules.
1
Verify Classification
Ensure the person is properly classified as an independent contractor, not an employee.
- Review classification factors (behavioral control, financial control, relationship type)
- Document why they're a contractor, not an employee
- When in doubt, consult with a tax professional
2
Collect W-9 Form
Get a completed W-9 form before making the first payment.
- W-9 provides the contractor's Taxpayer Identification Number (TIN)
- Required for filing 1099 forms if payments exceed $600
- Keep W-9 on file for your records
3
Create Written Agreement
Draft a clear contract that outlines the working relationship.
- Specify scope of work and deliverables
- Clarify that they're an independent contractor
- Include payment terms and schedule
- State that contractor is responsible for their own taxes
4
Set Up Payment Process
Establish how and when you'll pay the contractor.
- Determine payment method (check, ACH, etc.)
- Set payment schedule (weekly, monthly, per project)
- Track all payments throughout the year
- Keep detailed records of all transactions
5
Track Payments
Monitor total payments to determine if 1099 filing is required.
- Track cumulative payments throughout the year
- 1099-NEC required if payments total $600 or more
- Keep accurate records for tax filing
Important Reminders
- Do not provide benefits (health insurance, PTO, retirement) to contractors
- Do not control their schedule or how they perform the work
- Do not provide tools, equipment, or materials (unless specified in contract)
- Contractors are responsible for their own taxes and self-employment tax
- Keep all documentation (W-9, contracts, payment records) for at least 4 years