If your business paid contractors, freelancers, or unincorporated vendors this year, you may need to issue a 1099. Though it sounds simple, the process plays an important role in how the IRS matches income across tax filings. When 1099s are missing or incorrect, the IRS often flags the business – not the contractor – for follow-up.
Failing to file required 1099s can lead to meaningful penalties. The IRS charges a penalty for each missing or late form, and the amount depends on how late the filing is. For tax year 2025, the penalty is $60 to $330 per form depending upon how far past the deadline the form is issued.
In cases where the IRS believes a business intentionally disregarded the requirement, the penalty jumps to $660 per form or 10% of the income reported on the form, with no maximum limit. The IRS may also question whether payments to contractors are deductible if no corresponding 1099 exists. For small businesses with multiple vendors, these penalties can add up quickly.
The two forms most business owners deal with are the 1099-NEC and 1099-MISC. The NEC is for nonemployee compensation, which covers most contractors and service providers. The MISC form is used for things like rent payments, attorney fees, or other miscellaneous items. You may also hear about 1099-K, 1099-INT, or 1099-DIV, but those are typically handled by financial institutions and payment processors rather than individual businesses.
So, who actually needs a 1099 from you? In general, if you paid $600 or more to a contractor, sole proprietor, or LLC taxed as an individual, they’ll likely need a 1099-NEC. Rent payments and certain attorney fees may require a 1099-MISC. On the other hand, payments made using a credit card or platforms like PayPal and Stripe are usually reported on a 1099-K by the processor and don’t require you to issue a form.
To issue a 1099 correctly, you need three things in place. First, collect a W-9 from each eligible vendor before you pay them. Second, keep accurate records of what you paid during the year. Third, complete and file the correct 1099 by January 31 and send a copy to the recipient.
Here’s some good news amid all the paperwork to keep track of: Beginning with the 2026 tax year, the reporting threshold increases from $600 to $2,000. That will reduce the number of forms many businesses need to issue.
SBS prepares and files 1099s for clients every year, and we can handle the full process for you – vendor lists, W-9s, filing, and delivery. If you already have your W-9s collected, you can send them to us and we’ll take care of the rest. If you’re unsure whether a vendor needs a form or which type applies, we can help you sort that out before the deadline arrives.
Getting your 1099s right isn’t glamorous, but it’s an important part of keeping your business compliant and avoiding IRS letters. If you want help preparing for this year’s filings, we’re ready when you are.
To review your 1099 situation, contact us at help@sbsaccountants.com or 770-745-4283.