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1099 Forms: A Guide for Small-Business Owners

Writer's picture: Doug GrierDoug Grier

Updated: Jan 27




The Internal Revenue Service uses more than 1,500 forms to collect information about taxpayers. For small-business owners, few tax forms cause as much confusion as the 1099. There are several types of 1099 forms, and how they are used has changed over the years. To help clear up the confusion, we've clarified the purposes of the 1099 forms in use today. As always, we recommend consulting a tax professional for advice specific to your situation.


What Is a 1099?

Prior to 2020, the IRS required businesses to issue Form 1099-MISC to any vendor or independent contractor who received more than $600 for their services—including parts and materials—in a single year. Form 1099-MISC also documents prizes, awards, rents, and other income payments.


In 2020, the purpose of the 1099-MISC changed. It still documents prizes, awards, rents, and other payments totaling $600 or more. However, it's no longer used for payments to vendors and independent contractors. To account for these payments, you must issue a 1099-NEC (Nonemployee Compensation) to each individual or business entity.


Form 1099-NEC

You must issue a 1099-NEC for the following types of payments totaling $600 or more in a single year:


  • Payments to attorneys

  • Cash payments for aquatic life (e.g., fish) purchased from anyone who fishes as a commercial activity

  • Payments for services performed by anyone who isn't employed by your company (including parts and materials)


If you pay $600 or more to any single vendor or independent contractor during the year, you must send them a 1099-NEC. In other words, anyone who worked for you without being on your payroll should receive a 1099-NEC if you paid them $600 or more.


Vendors and independent contractors who may need a 1099-NEC from your business include:


  • Freelancers (e.g., copywriters, website developers, graphic designers)

  • Professional service providers (e.g., tax advisors, attorneys, consultants, accountants)

  • Sole proprietors who provide products or services to your business (e.g., caterers, contractors, interior decorators, professional organizers)


Finally, you must file a Form 1099-NEC if you withheld federal income taxes from anyone under the backup withholding rules. This applies regardless of the amount withheld.


Another Important 1099 Change

In 2022, the IRS started requiring payment apps and credit card companies to send a 1099-K to any business owner or self-employed individual who received at least $600 in payments through their platforms.


This change created some confusion around tax reporting obligations, as some people received multiple 1099-NEC forms for the same income. For example, if a graphic designer received $1,000 from a client via PayPal, they may have received a 1099-NEC from the client and a 1099-NEC from PayPal itself. As a result, recipients must keep detailed records. Otherwise, they may double-report their income, increasing their tax burden.


When a 1099 Isn't Necessary

Generally, you don't need to issue 1099 forms to the following entities:


  • Companies that provide storage or sell merchandise

  • Limited liability companies taxed as C or S corporations

  • Entities organized as C or S corporations


Who Needs a 1099 Form from You?

Before you allow a vendor or an independent contractor to work for your company, it's important to have them fill out Form W-9, which contains all the information you need to issue a 1099, such as their tax ID number and mailing address. If a vendor has formally incorporated their company, or if they have an LLC treated as a C or an S corporation, you shouldn't need to issue a 1099.


When Is the Deadline to Send 1099s?

Generally, you must issue 1099-MISC and 1099-NEC forms by January 31. You also must file a copy of each form with the IRS. The IRS filing deadlines are as follows:


  • January 31 for all 1099-NEC forms

  • February 28 for 1099-MISC forms filed on paper

  • March 31 for 1099-MISC forms filed electronically


If you send paper copies of your 1099 forms to the IRS, you must include Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) when you file your taxes. It's also important to check your state's 1099 filing rules.


What Happens If You Miss the Deadline?

If you miss the filing deadline, or if you don't file your 1099 forms at all, the IRS charges a penalty ranging from $60 to $310 (increasing to $330 for 2025). In cases of intentional disregard, which is when a business owner knowingly chooses to ignore the filing requirements, the penalty may be as high as $630 (increasing to $660 for 2025).


Where Can You Get 1099 Forms?

You can obtain 1099 forms by calling (800) 829-3676 or placing an order on the IRS website.


Stay Informed and Keep in Touch

As a small business owner, you're responsible for understanding all IRS rules and reporting requirements. Tax rules are always changing, so it's wise to check the IRS website regularly. It's also helpful to consult a tax professional for advice tailored to your unique situation.


The team at Fischer Advisors is standing by to help you understand and meet your tax and reporting obligations. We simplify complex tax topics, making it easier to follow IRS requirements. Reach out today to learn more about how we can help you.

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