So you hired some independent contractors and you paid them more than $600 this year. Hopefully you had that talk with them when they filled out the taxpayer information form w-9. If you did not have this talk or collect this information, than you should have a frank discussion to include:
1. That you have to report the non-employee compensation or other income on a form 1099. If you do not file the 1099 forms, the IRS can disallow the wage deduction, which essentially means YOU will have to pay THEIR tax (and possibly more self-employment tax) on the additional income created by such a disallowance. This will also expose yourself to the potential to be penalized $30-$100 per form.
2. That their income will be reported to the IRS and that they should be filing a schedule C if they made a profit this year. This form will prompt them to also file a Schedule SE to pay the payroll taxes (social security, medicare, etc.).
3. Why you are sorry that you didn't tell them before and how you are going to make it up to them if the thought they were being paid under the table.
You also have to file a 1096 to report the 1099 totals paid by your company.
You should file these forms before January 31st.