When you contract a sole proprietor for services, the Internal Revenue Service requires you to issue a 1099 to the worker when you pay him more than $600 during the year. For most payments, you’ll use Form 1099-MISC to report the sole proprietor’s income to the contractor and to the IRS. Once you’ve calculated the sole proprietor’s annual earnings, filling out the 1099 form takes only a few minutes.

Obtain IRS Forms 1099-MISC and 1096. The IRS posts copies of these forms on the irs.gov website, but you cannot print and fill these forms out. Physical 1099 and 1096 forms contain magnetic ink for scanning by the IRS. You can order 1099-MISC and 1096 forms for free on the IRS website, pick up free copies from some local libraries or purchase them from an office supply store.

Provide your business name, address and employer identification number in the “Payer’s” boxes.

Write the name, address and tax ID number of the sole proprietor in the “Recipient’s” boxes. In most cases, a sole proprietor will give you his Social Security number on the W-9 form you obtain from him before services are completed. This is the number you’ll write in the “Recipient’s Identification Number” box. However, in some instances, a sole proprietor may have an EIN instead. If the sole proprietor provides an EIN on Form W-9, write this number in the box.

List the amount of compensation you paid the sole proprietor during the year. In general, you’ll list the payment as non-employee compensation in Box 7. However, if payments you made were for specific services, such as rents, royalties or attorney fees, you’ll write the compensation in a different box, according to the type of service you received. If you withhold any taxes, list the amount and type in the appropriate 1099-MISC boxes.

Provide the completed form to the sole proprietor and the IRS. The sole proprietor receives Copy B and Copy 2. The IRS receives Copy 1, which must be attached to IRS Form 1096. Keep Copy C for your records. Form 1096 is a reconciliation form that you must send to the IRS with all 1099s you issue for the year. This form gives the IRS a summary of the 1099 amounts you paid. You'll combine the amounts from each 1099 and write the total on Form 1096.