Do I Need to Send a 1099? A Guide for Small Business Owners
As a small business owner, understanding tax compliance is crucial to keeping your operations smooth and avoiding costly penalties. One of the most common questions we hear is: “Do I need to send 1099s to people I paid this year?” Let’s break it down step-by-step so you know exactly what’s required and how to stay compliant.
What is a 1099 Form?
The IRS uses Form 1099-NEC to track payments made to non-employees, such as independent contractors or service providers. If you paid someone for services and meet the filing thresholds, you’re generally required to issue a 1099 form.
Who Needs to Send a 1099?
Here’s a quick checklist to determine if you’re required to send a 1099:
You paid someone $600 or more during the year – The payment must be for services, not goods.
The payment was made in the course of your trade or business – Personal payments don’t require 1099s.
The recipient was not an employee – For employees, you’ll issue a W-2 instead.
The payment was made to an individual, partnership, LLC, or estate – You don’t need to issue a 1099 to corporations, with a few exceptions.
The payment wasn’t made via credit card or PayPal – Payments made through third-party platforms are reported by those processors on Form 1099-K.
Who Should Receive a 1099?
The most common recipients of 1099s include:
Independent contractors or freelancers
Lawyers (even if they are incorporated)
Rent recipients (if you paid $600 or more for office or equipment rental)
Nonprofits or LLCs taxed as sole proprietorships/partnerships
Exceptions to the Rule
While most service providers qualify for a 1099, there are a few exceptions:
Corporations – You typically don’t need to send 1099s to C-corporations or S-corporations, except for payments to attorneys or for medical and healthcare services.
Payments via Credit Card or PayPal – These are reported by the payment processor.
Payments for Goods – Only services are reportab
How to Issue a 1099
Follow these steps to ensure compliance:
Collect W-9 Forms – Before paying any contractor, request a completed Form W-9. This provides the information you’ll need to prepare the 1099.
Track Payments – Keep accurate records of all payments made to non-employees.
Prepare Form 1099-NEC or 1099-MISC – Most contractor payments go on Form 1099-NEC. Use 1099-MISC for other types of payments, like rent.
File With the IRS – Submit the forms to the IRS electronically or by mail by January 31.
Provide Copies to Recipients – Send a copy of the 1099 to each recipient by January 31.
Penalties for Not Filing
Failing to file required 1099s can result in penalties ranging from $50 to $290 per form, depending on how late you file. If you intentionally disregard the rules, the penalties are even higher. You are required to furnish the payee statements by January 31 and file with the IRS by February 28 (March 31, if filing electronically).
Pro Tip: Use Software to Simplify the Process
Tax software can streamline 1099 preparation and filing, reducing errors and saving you time. Many programs also handle electronic submissions for you.
Need Help? We’ve Got Your Back!
Tax compliance doesn’t have to be stressful. If you’re still unsure about whether you need to send 1099s or how to prepare them, we’re here to help. Contact us to ensure your business stays on track and avoids unnecessary penalties.
Stay compliant. Stay stress-free. Let’s tackle tax season together!