This is the time of year when businesses begin to finalize their books for year-end tax purposes. Two tax forms, specifically the 1099-MISC and 1099-NEC, are sometimes neglected by businesses.
All 1099s must be sent to recipients by January 31. You’ll need to file 1099-NEC on or before January 31. Form 1099-MISC must be filed by February 28 (or March 31 if filing electronically).
Keep reading to see who receives a 1099, how to determine whether to send a 1099-NEC or a 1099-MISC tax form, and what details and amounts you need to report.
Determining who may need a 1099
If payment of $600 or more is made to a non-employee, those individuals or entities may need to be sent a 1099 form. You’ll determine whether to send a 1099 based on how the funds were issued, the type of service provided, and the recipient’s entity status.
Note: Starting with the 2026 tax year, the reporting threshold will increase from $600 to $2,000 under the One Big Beautiful Bill (OBBB). In this blog post, we highlight six key changes the bill brings.
Acquiring information for 1099s
Type of payment
If you paid a contractor or vendor by credit card, the payment processor (for example, your credit card company) will report those payments on a 1099-K. You will not file a 1099 for this vendor.
For all other vendors, you will need to find out their tax classification and what the payments were for by consulting their W-9.
Form W-9
The W-9 contains the information you’ll need to determine whether to issue a Form 1099 to the vendor. As a best practice, you should obtain a Form W-9 before paying an independent contractor or business. It is much easier to gain this information when you still have something they want: their payment!
If you need help completing this form, we’ve put together a short blog post that walks through how to fill out a W-9 and what each section means.
Form W-9 shows the name of the business or individual, federal tax classification or filing status, address, and taxpayer identification number (TIN). They need to fill out the form based on the information used on their tax return.
An individual may use their social security number instead of an employer identification number (EIN). In fact, if the vendor is a single-member (one owner) LLC, the IRS instructions indicate that line 1 of the Form W-9 should be the individual’s full name as it appears on the tax return. Then line 2 would be the business name. Rather than using the business tax ID number, the IRS prefers that you use the individual’s social security number since that’s what matches to the tax return filed annually. If the single-member LLC vendor doesn’t fill out the W-9 in this manner, it can cause you to receive a “mismatched TIN” letter from the IRS.
Be aware of which box is checked for federal tax classification. If the legal status of the recipient is a C or S Corporation, then a Form 1099 does not need to be sent (except for the amounts paid to attorneys as we will discuss later). It’s always a good idea to keep the Form W-9 on hand, even if you never send a 1099.
Proof of liability insurance
Another thing to consider getting is a form for proof of liability insurance. A key difference between an employee and a subcontractor is who’s responsible if something goes wrong on the job. If you need to generate a 1099, having these two forms in place before starting the business relationship makes the process smoother.
Types of 1099s
The two most common 1099s filed by small businesses are Form 1099-NEC and Form 1099-MISC.
Form 1099-NEC (Non-Employee Compensation) is prepared when a business pays for services performed by someone who isn’t an employee.
Form 1099-MISC is prepared when payments are made for miscellaneous items like rent, prizes or awards.
You’ll need to report these payments made to both the business or individual and to the IRS. Form 1096 (Annual Summary and Transmittal) accompanies the 1099s to the IRS. You will need a separate Form 1096 for each type of 1099 you are filing.
Form 1099-MISC
The most common amounts you’ll see on the Form 1099-MISC are payments made for rent. Enter these amounts in Box 1.
If you rent your business space from another entity, either owned by another entity of yours or someone else, you will need to issue a Form 1099-MISC for rents totaling $600 or more in one calendar year.
Note: Starting with the 2026 tax year, the reporting threshold will increase from $600 to $2,000 under the One Big Beautiful Bill (OBBB).
If you are a franchisee, you likely pay royalties to the franchisor. These amounts go in Box 2.
Enter an amount in Box 10 if you had a legal settlement or real estate closing and paid that amount to an attorney. This special box exists because the payment doesn’t always count as income for the attorney getting the 1099-MISC. That’s usually because they aren’t keeping all of the money themselves.
Form 1099-NEC
Payment for services performed by someone who is not your employee or a business that is not incorporated would be reported in Box 1 on the Form 1099-NEC. Common types of services that often need a Form 1099-NEC include advertising/marketing, IT/computer services, janitorial/cleaning, professional fees, accountants, consultants, and repairs/maintenance.
Attorney fees paid for services rendered should be reported on the Form 1099-NEC, not the Form 1099-MISC. Examples of these services include reviewing contracts, drafting agreements, and legal counsel regarding employment or business law. Regardless of whether the attorney is a corporation or not, you still need to report all cumulative payments of $600 or greater.
Note: Starting with the 2026 tax year, the reporting threshold will increase from $600 to $2,000 under the One Big Beautiful Bill (OBBB).
Penalties for not filing 1099s
The IRS includes two questions regarding Form 1099 on all business returns.
- Did you make any payments in [the previous year] that would require you to file Form 1099?
- If “Yes,” did you or will you file all required Forms 1099?
These two questions are on Form 1040 Schedules C, F and E and also on Forms 1065, 1120, and 1120S.
The IRS imposes penalties for late, inaccurate, incomplete or non-filing of 1099s. The penalty varies from $60 to $680 per form not filed.
Properly documenting payments to vendors helps you meet legal obligations. It also makes tax time smoother and reduces the risk of issues or audits.
If you have any questions about completing year-end tax forms, that’s what we’re here for!