Best Payroll Software for 1099 Contractors in 2026

What "1099 contractor payroll" actually requires

Gusto

Wave Payroll

OnPay

Paying 1099 contractors is simpler than W-2 payroll in one key dimension: you do not withhold income tax, FICA (Social Security and Medicare), or pay employer-side payroll taxes. The contractor handles their own self-employment tax. Your obligations are: pay the agreed amount, collect a W-9 from US-based contractors, and file a 1099-NEC form with the IRS for any contractor paid $2,000 or more in a calendar year, due January 31 the following year. That $2,000 figure is new for 2026: the One Big Beautiful Bill Act raised it from the $600 threshold that had applied since the form existed, and the IRS will index it for inflation starting in 2027. Payments made in 2025 still fall under the old $600 rule; the higher bar only applies to payments made in 2026 and later.

In practice, the compliance complexity comes from three sources: (1) volume, manually tracking payments and generating 1099-NEC forms for 20+ contractors is error-prone; (2) international contractors, non-US contractors have different tax documentation requirements (W-8BEN instead of W-9), and some payment methods attract banking scrutiny; (3) contractor classification risk, if the IRS determines someone you pay as a 1099 contractor should be classified as a W-2 employee, the employer is liable for back payroll taxes, penalties, and interest.

Dedicated contractor payment software solves the first two problems and helps with the third by creating a documentation trail. The minimum viable setup for 10+ contractors is a tool that handles W-9 collection, payment processing, and 1099-NEC filing automatically, otherwise the January tax season becomes a significant administrative burden.

Quick comparison

Gusto Contractor plan: best for US-only contractor payments

Gusto's Contractor-only plan currently lists at $35/month base plus $6/contractor on Gusto's own pricing page, a change from the flat per-contractor pricing this plan used to carry. Gusto frequently runs a promotion waiving the $35 base fee for the first six months, so many new signups effectively pay $6/contractor for that window, but the standard rate resumes afterward, budget for the base fee once the promo ends. It covers direct deposit payments via ACH (4-day standard, next-day requires the Plus tier), digital W-9 collection from new contractors, 1099-NEC generation and IRS filing at year-end, and a contractor self-service portal where contractors can update their payment details and download their own 1099s.

Setup: contractors receive an invitation email and complete their own onboarding (name, address, SSN, bank account for direct deposit, W-9 signature). This is the most significant UX advantage over alternatives, no manual data entry for contractor information.

Upgrade path: if you later hire W-2 employees, the Gusto Contractor plan upgrades cleanly to Gusto Simple ($49/month + $6/employee). Your contractor data and payment history carry over, and the contractor payment workflow works alongside W-2 payroll on the same platform.

G2 rating: Gusto earns a 4.6/5 from 12,000+ reviews, with specific praise in the contractor payment category for the clean onboarding workflow and 1099-NEC automation. The honest caveat: a Better Business Bureau complaint on file describes direct deposits not landing by the 5:00 PM local-time cutoff Gusto's site advertises, on every payday for that filer, so if payday-timing certainty matters for your contractors, confirm current deposit timing directly with Gusto support before committing rather than relying on the marketing copy alone.

Deel: best for international 1099 contractors

Deel at $49/contractor/month is the strongest option when your contractors are outside the US. Deel handles payment in 150+ countries via ACH, SEPA, PayPal, Payoneer, Wise, or cryptocurrency, collects W-8BEN (for non-US persons) or W-9 (for US persons) automatically, and provides localized contract templates that include country-specific IP assignment and confidentiality clauses.

1099-NEC filing: Deel files 1099-NEC forms for US-based contractors paid through the platform. For non-US contractors, 1099 filing is not required, but Deel maintains the documentation trail (W-8BEN, contract, payment records) needed to demonstrate proper classification.

Cost reality check: $49/contractor/month adds up fast. For a team with 15 US contractors and 5 international contractors, that's $980/month, more expensive than most alternatives. If your international contractor volume is low, using Gusto Contractor ($35/month base plus $6/contractor) for US contractors and Wise Business for international payments (lower transaction fees, no monthly per-contractor fee) can be more cost-effective.

Deel earns a 4.8/5 from 6,800+ G2 reviews, with the highest concentration of positive reviews in the international contractor payment category. The consistent praise: fast setup, reliable payment delivery, and the peace of mind of having localized contracts and compliance documentation handled automatically.

1099 filing only: the minimum viable option

If you already manage contractor payments manually (via ACH or check) and only need help with 1099-NEC filing at year-end, a dedicated 1099 filing service is cheaper than full contractor payroll software.

Track1099, now sold as "Avalara 1099 & W-9" following Avalara's acquisition of the product: IRS e-filing is tiered by volume, $3.10/form for the first 15 forms, $2.30/form for forms 16-165, $1.30/form for 166-500, and $0.63/form above 501 (per Avalara's published pricing, verified 2026-08-04), plus $1.49/form for state e-filing and $0.45/form for optional TIN matching. Upload payment data via spreadsheet or QuickBooks/Xero import, generate 1099-NEC forms, e-file with the IRS, and mail paper copies to contractors. Since the Avalara acquisition, multiple G2 and Capterra reviewers report slower support response times than the product had under its original ownership, worth weighing against the per-form savings at higher volumes.

Tax1099 (by Nelco): similar pricing structure, $2.99-$4.99/form depending on volume, with IRS e-file and postal mail. Both are legitimate services used by small businesses with 5-50 contractors who don't need the year-round payment management features of Gusto or Deel.

The trade-off: these tools file forms but don't manage W-9 collection, payment logistics, or contractor onboarding. For a business with fewer than 10 contractors who pays via bank transfer, this is the cheapest compliant path to 1099-NEC filing.

What happens when a 1099-NEC filing goes wrong

Every payroll and 1099 vendor markets how easy filing is; none of them advertise what it costs you when a filing is late, wrong, or gets rejected. That gap is worth closing before you pick a tool, because these failure modes are common and the fixes eat real time in January.

Late or incorrect filing penalties. Under IRS rules for information returns (Internal Revenue Code Section 6721/6722, detailed in IRS Publication 1099), the penalty for filing a 1099-NEC late or with incorrect information is tiered by how late you correct it: $60 per form if corrected within 30 days of the deadline, a mid-tier amount if corrected after 30 days but before August 1, and up to $340 per form if corrected after August 1 or not filed at all. If the IRS determines you intentionally disregarded the filing requirement, the penalty jumps to a minimum of $680 per form (or 10% of the amount that should have been reported, whichever is greater) with no annual cap. None of this is optional or negotiable through software, it applies regardless of which platform you use, so the real protection is a workflow that catches errors before the January 31 deadline, not after.

TIN mismatches and the B-Notice cycle. After you file, the IRS runs the contractor's name and Taxpayer Identification Number against its own records. A mismatch triggers a CP2100 or CP2100A notice listing the affected payees. From there you have 15 business days to send that contractor a "B-Notice" requesting a corrected W-9, and the contractor has 30 business days to respond. If they don't, you're required to start backup withholding at 24% on all future payments to that contractor until the mismatch is resolved, a step that catches businesses off guard because it happens well after the original payment and filing. Collecting a clean W-9 with the legal name and TIN spelled exactly as the IRS has it, before the first payment, is the only real prevention.

Common e-file rejection reasons. Based on the rejection-troubleshooting documentation payroll platforms publish for their own users, the two most frequent causes are a mismatch between the company's legal name or EIN and IRS records (abbreviating a legal business name is enough to trigger this), and an incorrect or incomplete contractor address. A less obvious failure mode shows up when a business switches payroll or 1099 providers mid-year and forgets to fully cancel the old one: both platforms file, the IRS receives two returns for the same contractor and period, and the contractor ends up with duplicate 1099s that need manual correction on both sides. A real example from the QuickBooks Community forum: a filer whose 1099s were rejected, refiled per support instructions, and then found their subcontractors had received two 1099s each, illustrating exactly this dual-filing trap. If you're switching tools, confirm the outgoing platform's filing is voided, not just that your account is closed.

The takeaway for choosing software: the platforms compared in this guide all handle the mechanics of collecting a W-9 and submitting the e-file, but none of them can force a contractor to give you an accurate TIN or catch a typo in a legal business name before it becomes a CP2100 notice months later. Build the W-9 verification step into your process regardless of which tool you pick.

OnPay and Square: other US contractor options worth comparing

Beyond Gusto, two US platforms handle contractor-heavy teams well at lower entry prices. OnPay charges a flat $49/month base plus $6 per person, and that $6 applies equally to W-2 employees and 1099 contractors. There is no separate contractor-only tier, which means a 5-contractor shop pays $79/month - more than Gusto's contractor plan, but OnPay bundles unlimited monthly pay runs, automated 1099 filing, and full-service W-2 payroll in the same price. That matters if you expect to convert some contractors to employees later, because you won't re-platform. OnPay holds a 4.8/5 on G2 across 200+ reviews, with reviewers consistently praising hands-on migration support.

Square Payroll is the cheaper pick for pure contractor payouts: $6 per contractor per month with no base fee. Pay three contractors and you owe $18/month; pay zero in a given month and you owe nothing, since Square only bills for months with activity. It files 1099-NEC forms automatically and syncs with Square's POS and banking if you already run a retail or food business on that stack. The tradeoff is a thinner feature set - no dedicated HR advisory, weaker multi-state W-2 handling, and limited benefits administration. Square sits around 4.2/5 on G2.

Picking between them comes down to trajectory. A 4-person agency paying only contractors who never plans to hire W-2 staff saves real money with Square's no-base model. A growing startup mixing 1099s and full-time employees gets more headroom from OnPay's flat structure without per-tier upgrade jumps. Both file federal and state 1099s as part of the subscription, so neither leaves you handling year-end forms manually.

1099-NEC vs 1099-K and the dollar thresholds you actually need to track

The form your contractor receives depends on how you pay them, not just how much. If you pay a contractor directly - ACH, check, or via payroll software like Gusto or OnPay - you issue a 1099-NEC (Nonemployee Compensation) for total payments of $2,000 or more in a calendar year (for payments made in 2026 and later; 2025 payments still fall under the old $600 rule). Your payroll provider generates and files the 1099-NEC with the IRS and sends the contractor a copy, typically by the January 31 deadline.

The 1099-K is different and trips up a lot of small businesses. It is filed by third-party settlement networks - PayPal, Stripe, Venmo for business, or marketplace platforms - not by you. If you pay a contractor through one of those rails, that processor may issue the 1099-K, which is why paying through PayPal can create reporting overlap. This threshold had been dropping year over year toward $600 before the One Big Beautiful Bill Act reversed course: as of the OBBBA, the 1099-K trigger reverts to $20,000 and more than 200 transactions per platform, which is the original pre-2023 threshold, not the lower figures that circulated in 2024-2025 guidance. A lot of still-uncorrected articles online cite the old phase-down numbers, confirm the current $20,000/200-transaction rule directly against IRS Fact Sheet FS-2025-08 if this matters to your situation.

The practical rule for a payroll buyer: if your software pays contractors directly via bank transfer, you are in 1099-NEC territory at the $2,000 threshold, and your provider handles it. The 1099-K now only enters the picture for contractors you pay at very high volume through a card processor or marketplace. Keeping contractor payments inside one direct-pay payroll tool avoids double-reporting and keeps your $2,000 tracking clean and auditable.

Contractor classification risk and how pricing stacks up

The cheapest way to pay a contractor is worthless if the IRS later decides that person was an employee. Misclassification exposes you to back payroll taxes, unpaid overtime, penalties, and in some states (notably California's ABC test) automatic reclassification. The IRS weighs behavioral control, financial control, and the relationship type - a worker you direct daily, who uses your equipment and works only for you, looks like a W-2 employee no matter what the contract says. Good payroll software helps at the margins: platforms like Gusto and OnPay let you flag worker type, store signed W-9s, and produce a clean payment trail, but no software makes the classification decision for you.

When comparing tools, weigh the per-contractor cost against whether the platform can grow into W-2 payroll if a reclassification forces your hand. A provider that charges nothing for a contractor-only plan but levies a steep base fee the moment you add one employee can cost more over time than a flat-rate option. The table below summarizes the main US contractor-pay choices covered across this guide.

Match the tool to your trajectory, not just this month's headcount. A studio paying four domestic contractors with no hiring plans gets the lowest total cost from Square. A 15-person company mixing contractors and employees across two states is better served by OnPay or Gusto, where the same subscription covers reclassification without a painful migration.

See also: best payroll software for contractors, best payroll software for freelancers for related options.

Frequently asked questions

What's the cheapest way to pay a handful of 1099 contractors? If you only need year-end filing and already pay contractors by ACH or check, a dedicated filing service like Track1099 (now Avalara 1099 & W-9) starts around $3.10 per form for small batches, cheaper than any full payroll subscription for under 10 contractors.

Do I need to collect a W-9 before paying a new contractor? Yes, and ideally before the first payment, not at year-end. The W-9 provides the legal name, address, and TIN you need to file an accurate 1099-NEC by the January 31 deadline; chasing this information in January is the most common cause of late or incorrect filings, and a name or TIN that doesn't match IRS records is the top cause of the e-file rejections and CP2100 mismatch notices covered above.

What's the new 1099-NEC dollar threshold for 2026? $2,000, up from $600. The One Big Beautiful Bill Act raised the reporting threshold for payments made in 2026 and later, and the IRS will index it for inflation starting in 2027. Payments made in 2025 are still governed by the old $600 threshold. All income remains taxable either way, the threshold only affects whether a 1099-NEC is required, not whether the contractor owes tax on it.

What happens if I file a 1099-NEC late or the IRS flags a TIN mismatch? Late or incorrect filings carry a per-form IRS penalty that starts at $60 and rises to $340 the longer it goes uncorrected, per IRS Publication 1099; intentional disregard carries a $680-per-form minimum with no cap. A TIN mismatch triggers a CP2100 notice, and you then have 15 business days to send the contractor a B-Notice requesting a corrected W-9, if they don't respond within 30 business days, you must start withholding 24% from future payments to them.

If I pay a contractor through PayPal, do I still need to issue a 1099-NEC? No. Payments made through third-party settlement networks like PayPal or Stripe are reportable by the processor on a 1099-K instead, and issuing a 1099-NEC for the same payment causes double-reporting. Direct ACH or check payments through your payroll tool stay in 1099-NEC territory. Note that the 1099-K threshold itself reverted to $20,000 and 200+ transactions under the same 2025 legislation, so this scenario now applies to far fewer small businesses than it did in 2024-2025.

Is Square Payroll a good fit if I only pay contractors? Often yes, for pure contractor-only shops. It charges $6 per contractor per month with no base fee and bills only in months you actually pay someone, which beats base-fee competitors like OnPay ($49/month base) or Gusto Contractor ($35/month base) if your contractor count is small and irregular.

What happens if the IRS decides a "contractor" was really an employee? Misclassification triggers back payroll taxes, unpaid overtime, and penalties, and states with an ABC test (like California) can force automatic reclassification. No payroll software makes this legal determination for you; it only stores the W-9s and payment trail that support your position if audited.

Can I switch a contractor to a W-2 employee without changing payroll providers? With Gusto or OnPay, yes, since both handle W-2 and 1099 workers on the same subscription and same per-person pricing. Contractor-only tools like Square or Track1099 don't support this, so if you expect conversions, a combined platform avoids a re-platforming project later.