Compliance 101: Which 1099 Form Should You Use for Contractors?

Your startup's greatest asset is its global team. Hiring overseas talent is smart for growth, but it introduces a major headache for your finance team: massive regulatory risk.

For a fast-growing startup, dealing with international sanctions, Anti-Money Laundering (AML) laws, and complicated cross-border tax reports is a huge liability. Get it wrong and the cost of fines, legal battles, and a damaged reputation will instantly wipe out any savings gained by hiring abroad.

The Stakes Are Rising Fast

Regulatory enforcement is getting tougher every day, and compliance mistakes are now more expensive than ever. According to a recent report, regulatory penalties exploded by over 417% in the first half of 2025 as enforcement agencies ramped up oversight.

This means relying on manual checks and outdated spreadsheets for international payments is no longer a viable option, it's a direct path to a costly error. You need an automated defense to protect your business. 

Do Contractors Get 1099-MISC or 1099-NEC?

What is Form 1099? 

It’s the IRS form US businesses use to report payments made to independent contractors and vendors for their services. For US-based companies, compliance begins with accurate tax reporting. Misclassifying payments or using the wrong forms is a costly mistake that is completely avoidable.

Do contractors get a 1099-MISC or a 1099-NEC?

For payments made to independent contractors, freelancers, and vendors, you must use Form 1099-NEC (Non-Employee Compensation). This is required for payments of $600 or more during the tax year.

The older Form 1099-MISC (Miscellaneous Income) is now reserved for a different type of transaction, like rent payments or prize money, and is generally not the form to use for contractor services.

Getting the correct 1099 process right is the absolute baseline for avoiding IRS penalties. However, when you add global payments into the mix, the complexity skyrockets, which is why you need an automated, proactive payout system to monitor everything.

What Makes Global Monitoring Harder?

Here is the final rewritten section, answering the implied question from your suggested title and focusing on the heightened risk of global payments:

While Form 1099-NEC solves your US contractor reporting problem, it only addresses tax compliance at home. The moment your payments cross a border, the financial and regulatory risks multiply exponentially.

You are no longer just dealing with the IRS; you must now comply with:

• US Reporting Requirements: (Like 1099, but for US-based recipients).
• Global Sanctions Lists (e.g., OFAC): Ensuring you don't pay blacklisted individuals or entities.
• International Anti-Money Laundering (AML) Rules: Tracking transactions to prevent illicit funds movement.

The Core Problem: Speed vs. Risk

The biggest challenge for finance teams is the huge volume of payments and the absolute need for real-time risk assessment. Imagine a payment batch going out: If one payment is suddenly flagged for a sanctions violation, an automated API system must stop it instantly.

A manual or outdated system will likely process the payment before anyone can catch it, leaving the business directly liable for a massive, company-crippling fine. This is why automated global monitoring is non-negotiable.

How Can a Payments API Help Automate 1099 Compliance?

Modern payment infrastructure, built on an API, turns compliance from a reactive, manual audit into a proactive, automated safety net. It takes the guesswork out of adhering to global regulations and even simplifies your US tax burden.

A robust API payment platform ensures that:

• Vetting is Instantaneous: Every new contractor's banking details and jurisdiction are screened against global watch lists before the first payment is initiated, minimizing your exposure to sanctioned entities.
• Transaction Monitoring is Real-Time: Automated logic flags suspicious patterns or non-compliant payment destinations the moment a transaction is attempted, stopping risk immediately.
• Data is Centralized and Clean: The system automatically captures and formats the payment data needed to accurately file Forms 1099-NEC, making the year-end process for which 1099 form for contractors significantly easier and reducing manual error.

By embedding these checks directly into the payment flow, you establish a financial infrastructure that scales with compliance built-in, transforming a significant liability into a simple, automated process.

How to Choose the Right Partner for Automated Global Payment Monitoring

Navigating global compliance and the ever-changing landscape of tax forms like the 1099-NEC doesn't have to be a source of anxiety. The solution is finding a platform that offers automated compliance monitoring and reporting as a core feature.

Dots is specifically designed to function as your automated compliance safety net. It integrates real-time payment monitoring and reporting directly into its API, flagging suspicious or non-compliant activity before it leaves your system. This level of automated oversight is essential for:

• Real-Time Risk Flagging: Instantly screens all international payments against global watch lists.
• Simplified Tax Reporting: Automates the data collection necessary for accurately issuing the correct tax forms, taking the pain out of managing which 1099 form for contractors.
• Centralized Audit Trails: Provides clear, unalterable records of every payment, ensuring you are prepared for any regulatory scrutiny.

Dots transforms compliance from a costly manual overhead into a streamlined, secure operation, ensuring you are protected against the rising tide of regulatory penalties.

Ready to secure your payouts and simplify your contractor tax reporting? Book a demo with Dots and see how automated compliance works for you.