1099 Vendor Requirements: Who Needs One and How to File

If your business pays independent contractors, freelancers, or certain vendors, you likely need to file 1099 forms with the IRS. This guide explains who needs a 1099, what payments are reportable, and how to stay compliant.

What Is a 1099?

A 1099 is an information return that reports payments made to non-employees. You send one copy to the payee (so they can report the income) and file one with the IRS (so they can verify the payee reported it).

Types of 1099 Forms

1099-NEC (Nonemployee Compensation)

Use for: - Independent contractors - Freelancers - Consultants - Professional services (attorneys, accountants) - Self-employed individuals you paid for services

Threshold: $600 or more during the calendar year

1099-MISC (Miscellaneous Income)

Use for: - Rent payments - Royalties - Prizes and awards - Medical and health care payments - Crop insurance proceeds - Fishing boat proceeds - Gross proceeds to an attorney

Threshold: Generally $600 or more (varies by box)

1099-INT (Interest Income)

Use for: Interest paid of $10 or more

1099-DIV (Dividends)

Use for: Dividends paid of $10 or more

1099-K (Payment Card and Third Party Network)

Filed by: Payment processors, not by you Reports: Card transactions and third-party network payments to you

Who Needs a 1099?

You Must Issue 1099-NEC To:

Payee Type	Examples
Sole proprietors	Freelancers, consultants
Partnerships	Law firms (some), consulting firms
LLCs (single member)	Treated as sole proprietor
LLCs (partnership)	Treated as partnership
Limited Partnerships	Some professional services
Estates	For services rendered

You Don’t Issue 1099-NEC To:

Payee Type	Why Exempt
Corporations (C-Corp, S-Corp)	Exempt from 1099-NEC (with exceptions)
LLCs taxed as corporations	Exempt like corporations
Employees	Report on W-2, not 1099
Payments under $600	Below reporting threshold
Merchandise purchases	Not a service

Exceptions (Always Report)

Even if the payee is a corporation, you must issue 1099 for: - Attorney fees: All payments for legal services - Medical payments: Payments for medical services - Fish purchases: Payments for fish

What Payments Are Reportable?

1099-NEC Reportable

Payment Type	Reportable?
Consulting fees	Yes
Professional fees	Yes
Contract labor	Yes
Commissions (non-employee)	Yes
Subcontractor payments	Yes
Independent contractor fees	Yes
Legal fees	Yes

Not Reportable on 1099-NEC

Payment Type	Why
Merchandise/goods	Not a service
Payments to corporations	Exempt (with exceptions)
Employee wages	Report on W-2
Rent	Report on 1099-MISC
Payments via card/PayPal	Reported by processor on 1099-K

Payment Method Matters

Credit card or PayPal payments: Generally NOT reported by you. The payment processor reports these on 1099-K.

Check, ACH, wire, cash: These ARE reported by you on 1099.

Filing Requirements

Deadlines

Form	To Recipient	To IRS (Paper)	To IRS (Electronic)
1099-NEC	January 31	January 31	January 31
1099-MISC	January 31	February 28	March 31

Filing Methods

Paper Filing: - Use official IRS forms (red ink) - Mail to IRS with Form 1096 transmittal - Allowed if filing fewer than 250 forms

Electronic Filing: - Required if filing 250+ forms (for 2023) - Use IRS FIRE system or approved software - Lower threshold coming in future years

W-9 Requirements

What Is a W-9?

Form W-9 (Request for Taxpayer Identification Number) collects: - Legal name - Business name (if different) - Tax classification - TIN (SSN or EIN) - Address - Certification signature

When to Collect W-9

Before the first payment (best practice) — see our W-9 vendor collection guide for templates and processes
Before year-end (required for 1099 filing)
When vendor information changes

W-9 Red Flags

Issue	Risk	Action
Unsigned W-9	Invalid	Request signed copy
TIN doesn’t match name	IRS notice	Verify before filing
Missing TIN	Can’t file correctly	Withhold 24% (backup withholding)
Business name but SSN	May be wrong classification	Clarify tax status

Backup Withholding

If you don’t have a valid TIN, you may be required to withhold 24% of payments.

When Backup Withholding Applies

Payee fails to provide TIN
IRS notifies you TIN is incorrect
Payee fails to certify exempt status

How to Apply

Withhold 24% from reportable payments
Report on Form 945
Report to payee on 1099

Common Mistakes

Filing Errors

Mistake	Consequence	Prevention
Wrong TIN	IRS notice, penalties	Use TIN matching
Wrong name	IRS notice	Verify against W-9
Missing forms	IRS penalties	Track all payments
Late filing	Penalties	Start early
Wrong form	Rejection	Know which to use

Classification Errors

Mistake	Risk	How to Avoid
1099 to employee	Worker classification issue	Understand IRS tests
Corporation not reported	OK if truly exempt	Verify tax status
Sole proprietor as corp	Under-reporting	Check W-9 carefully

Penalties

Failure to File

How Late	Penalty Per Form
Within 30 days	$60
31 days - Aug 1	$120
After Aug 1 / not filed	$310
Intentional disregard	$630+

Caps apply based on company size.

Failure to Furnish to Recipient

Similar penalty structure for not providing copy to payee.

Year-End Checklist

By November 15

[ ] Run preliminary 1099 vendor report
[ ] Identify vendors missing W-9
[ ] Send W-9 requests to non-compliant vendors
[ ] Review vendor classifications

By December 15

[ ] Follow up on missing W-9s
[ ] Verify TINs (use IRS TIN matching)
[ ] Finalize vendor payment totals
[ ] Verify addresses

By January 15

[ ] Run final 1099 report
[ ] Review for accuracy
[ ] Generate 1099 forms
[ ] Prepare 1096 transmittal (if paper filing)

By January 31

[ ] Mail 1099s to recipients
[ ] File with IRS (1099-NEC)
[ ] File with state (if required)

Key Takeaways

Collect W-9s before first payment
Track all payments to non-employee service providers
Most service payments of $600+ to non-corporations need 1099-NEC
Credit card payments are reported by the processor, not you
Attorney payments always need 1099 regardless of corp status
Start year-end process early to avoid penalties