Guide to 1099s
Whether it’s your first year filing 1099s or you’re a seasoned pro, it’s always a good idea to refresh your knowledge and ensure you’re keeping up with the ever-changing requirements.
Simply put, a 1099 is a form used to report income to the IRS. Each type of 1099 reports a different type of income. For the purposes of this guide, we’ll be focusing on the 1099-NEC: Nonemployee Compensation. A 1099-NEC reports payments for services from a non-employee that total over $600.
If you’re a small business owner who works with contractors (or you are a contractor yourself), you’ll want to keep reading!
Before worrying about 1099s, you need a W-9!
Officially called the “Request for Taxpayer Identification Number and Certification”, this form should be filled out by your contractor before you pay them. Due to the sensitive information on these forms, it’s important to keep them in a secure location in your business’s records.
What if my contractor doesn’t want to provide a W-9?
This is a red flag when hiring a contractor! Without the information from a W-9, you cannot determine whether you need to withhold backup taxes, and your business could face penalties for filing an inaccurate or incomplete 1099.
What’s important on a Form W-9?
Recipient’s name & address: this information helps ensure the payments are filed for the correct legal entity.
Federal tax classification: this information lets you know if the entity you’re paying is an individual, a corporation, a partnership, a trust/estate, or an LLC and how they should be treated for tax purposes.
Taxpayer identification number (TIN): depending on the type of entity your contractor is, the TIN could be their SSN or EIN.
Certification: in this section, your contractor states that the information they’ve provided is correct and that they are not subject to backup withholding.
Was this contractor:
Someone you paid $600 or more to in 2024
Not paid by a payment settlement entity (like a credit card, PayPal)
Paid for services that had a business purpose (not personal services)
Not an employee on your payroll
Not taxed as a corporation (special rules apply to payments to attorneys)
A U.S. citizen, U.S. resident alien, or U.S. based entity
If the answer is yes to all of these, then you probably need to file a 1099-NEC.
Steps to File a 1099-NEC
Aside from your contractor’s Form W-9, which will have their business information, TIN, and entity type, you’ll also need to know the amount you’ve paid this contractor in 2024.
Determine which method you’d prefer to file your 1099s. If you’re filing more than 10 information returns, the IRS requires that you e-file. Fill out each section of the 1099-NEC (Reminder: your business is the payer and the contractor is the recipient). The deadline to e-file is January 31st.
In addition to filing with the IRS, you need to provide a copy of the 1099 to your contractor and the state (if applicable).
What happens if I don’t file?
If you haven’t filed your 1099-NEC and you’re anywhere up to 30 days past the deadline, you may be subject to a $60 penalty (and interest) for each return and payee statement you don’t file. The penalty per return/payee statement increases to $130 by March 1. The penalty per return/payee statement increases to $330 on August1.
If you are found to have intentionally disregarded filing your information returns, you may be subject to a $660 penalty per return in 2025 with no maximum penalty!