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1099 Requirements for Small Businesses: A Simple Guide for Business Owners

This is your go-to guide for understanding 1099 requirements for small businesses, including who needs a 1099, what the IRS 1099 filing deadlines are, and how to avoid penalties. Whether you’re working with freelancers, vendors, or service providers, this article simplifies the process.

 

As the year wraps up, many business owners start wondering: ” What are the 1099 requirements for small businesses? Do I need to send 1099s? Who gets one? What counts?” If you’re paying people who aren’t on payroll, you probably have some 1099s to send. Here’s what you need to know.

What Is a 1099 and Why Does It Matter?

A 1099 is a tax form you send to certain people or businesses you’ve paid during the year. It tells the IRS (and the person you paid) how much money you gave them. If you skip this step, you could face penalties.
There are two common types for business owners to know:
  • Form 1099-NEC: For payments to non-employees (like freelancers or contractors).
  • Form 1099-MISC: For things like rent or prize payments.
These forms are essential for contractor tax reporting and keeping your business compliant.

Who Needs a 1099-NEC?

You need to file Form 1099-NEC if you:
  • Paid $600 or more to a person or business for services (not goods)
  • The person is not your employee (they didn’t get a W-2)
  • You paid them by cash, check, or bank transfer (not credit card or PayPal)
  • They are a sole proprietor, partnership, or LLC (corporations usually don’t get one, but see below)
Common examples:
  • Freelance bookkeeper
  • Cleaning company
  • Graphic designer
  • Independent delivery driver
Exceptions:
  • You don’t need to file a 1099-NEC for payments made by credit card or payment apps (those get reported by the payment processor).
  • You do need to file for certain corporations if you paid them for legal or medical services.
If you’re wondering how to file 1099-NEC or which vendors need a 1099, this section is key.

Who Needs a 1099-MISC?

Use Form 1099-MISC for payments not covered by 1099-NEC. You must file it if you:
  • Paid $600 or more in rent, prizes, or other income
  • Paid an attorney (in some cases, even if incorporated)
  • Paid medical or health care providers (including some corporations)
Common examples:
  • Rent paid for office or kitchen space
  • Payments to a law firm
  • Prize or giveaway winners
*While these are basic guidelines to follow, determining exactly who needs a 1099 can be more complex than it seems. There are exceptions and special cases that may apply depending on the situation. We recommend speaking with a financial professional to make sure you’ve filed everything correctly and on time to avoid potential penalties.

What About State Rules?

Some states have their own 1099 filing rules. Check with your accountant or state tax office to see what’s required where you do business.

1099 Filing Deadlines

The deadline to send 1099 forms to your contractors and vendors is January 31. For filing with the IRS, 1099-NEC forms are also due by January 31. For 1099-MISC forms, the IRS deadline is March 31 if filing electronically. Deadlines may shift slightly if the due date falls on a weekend or holiday.
These IRS 1099 deadlines apply to both freelancer tax forms and payments to service vendors.

Penalties for Missing or Late 1099s

If you miss the deadline or don’t send a required 1099, the IRS can charge a penalty starting at $60 per form and going up from there. Filing early and keeping records will help you avoid headaches.
Avoiding 1099 penalties for late filing starts with planning ahead.

How to Get Ready to File

Here are a few steps to make your 1099 filing process smoother:
  1. Request a W-9 form from each vendor or contractor before you pay them. This form gives you the legal name, tax ID, and address you’ll need to complete their 1099.
  2. Track total payments made to each service provider throughout the year. Focus on payments made by cash, check, ACH, or direct deposit (not credit card or PayPal).
  3. Double-check vendor info before filing. Make sure names and tax ID numbers match the W-9 exactly.
  4. Use a trusted tool (or your accountant) to prepare and e-file 1099s by the IRS deadlines.
  5. Keep records of all payments and submitted forms in case the IRS asks questions later.
Good preparation in the fall can save you stress in January.

Still Have Questions?

If you’re unsure who gets a 1099 or how to file, you’re not alone. We help business owners every year figure this out with less stress. Schedule your free consultation with Anne Napolitano Consulting if you need help filing your 1099s this year.

FAQs About 1099 Requirements for Small Businesses

1. Do I need to send a 1099 to every vendor I pay?

No. You only need to send a 1099-NEC if you paid a contractor or business $600 or more for services by cash, check, or bank transfer. You don’t need to send one for payments by credit card or PayPal, or for goods.

2. What’s the difference between a 1099-MISC and a 1099-NEC?

Use 1099-NEC for non-employee compensation (services like freelance work). Use 1099-MISC for things like rent, prizes, or medical payments. Knowing the difference between 1099-MISC and 1099-NEC is key for business owners.

3. What information do I need to file a 1099?

You need the contractor’s or vendor’s legal name, mailing address, and tax ID. Get this by having them fill out a W-9 form before you pay them.

4. When are 1099s due to be sent out and filed?

Send 1099s to your contractors by January 31. File 1099-NEC with the IRS by the same date. File 1099-MISC with the IRS by March 31 if filing electronically.

5. What happens if I don’t file a 1099 or file it late?

The IRS may charge penalties that start at $60 per form and increase depending on how late the filing is. That’s why it’s important to plan ahead and file your 1099s on time.

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