1099s & Workers
1099 vs W-2: Contractor or Employee?
Short answer
The IRS uses three categories — behavioral control, financial control, and relationship — to decide if a worker is a contractor or employee. If you tell them when, where, and how to work, provide tools, and pay them regularly, they are probably an employee, no matter what the contract says.
Misclassification penalties stack: back payroll taxes, interest, penalties, plus the worker can file for unemployment and benefits. Get this right from day one.
Quick test
| Sign | More likely… |
|---|---|
| You set their hours | Employee |
| They use your tools and truck | Employee |
| You train them on how to do the work | Employee |
| They work only for you | Employee |
| They invoice you and have other clients | Contractor |
| They use their own tools and methods | Contractor |
| You pay per project, not per hour | Contractor |
When you must issue a 1099-NEC
- You paid an unincorporated person/LLC $600 or more for services in the year.
- Get a signed W-9 before you cut the first check.
- Issue Form 1099-NEC by January 31 of the following year.
- File with the IRS the same day.
Frequently asked questions
Do I need to 1099 someone I paid via PayPal or Stripe?
No — those payment processors issue 1099-K. You only 1099 for cash, check, ACH, or Zelle (not third-party processors).
What if I am not sure?
File Form SS-8 with the IRS for a determination, or assume employee — it is the safer default.
Tax-ready records, automatically.
Glo Invoice tags every expense and 1099 contractor so tax time is a download, not a scramble.
Sources & further reading
Primary sources we consulted when writing and reviewing this guide.