Paying someone as a contractor (1099) is simpler and cheaper than paying an employee (W-2). That is exactly why the IRS looks closely at it. The label you choose does not decide; the relationship does.
The three questions the IRS asks
- Behavioral control: do you control how, when and where the work is done, or only the final result?
- Financial control: does the worker use their own tools, have their own expenses, work for other clients and have the chance to make or lose money?
- Relationship: is there a written contract, are there benefits, and is the work ongoing and a key part of your business?
If you set the schedule, provide the tools, train the person and they only work for you, they are probably an employee.
Why it matters
If the IRS or the state reclassifies a contractor as an employee, you can owe back payroll taxes, penalties and interest, plus unemployment insurance and workers' compensation issues in Nevada.
If they really are a contractor
- Get a signed Form W-9 before you pay them
- Keep a simple written agreement that describes the work
- Pay business to business when possible and keep records
- File Form 1099-NEC when you pay them over the reporting threshold in a year
The 1099-NEC threshold changed
For many years, you had to file a 1099-NEC when you paid a contractor $600 or more. Under the 2025 federal tax law, the threshold increases to $2,000 for payments made in 2026 and later, with inflation adjustments in future years. 1099-NEC forms are due to the contractor and the IRS by January 31 (February 1, 2027, for 2026 payments, because January 31 falls on a Sunday).