You just closed your books for the year and realized you paid dozens of contractors, vendors, and service providers. Now the question keeping you up at night: who gets a 1099?
Send forms to the wrong people and you waste time and money. Miss someone who actually needs one and you risk IRS penalties starting at $60 per form, climbing to $310 or more if you ignore the notices. The rules seem straightforward until you hit edge cases like that LLC you're not sure about, the lawyer who billed you $5,000, or the contractor who ghosted you before returning a W-9.
Here's the short answer: You must issue a 1099-NEC to any unincorporated business or individual you paid $600 or more during the tax year for services performed in your trade or business. That's the core rule, but the devil lives in the exceptions. This guide walks you through exactly who needs a 1099, who doesn't, and how to handle the tricky situations that trip up even experienced business owners.
The BasicundefinedRule and Why It Exists
The IRS uses Formundefinedto track income that doesn't flow through traditional W-2 payroll. When you pay an employee, payroll taxes get withheld and reported automatically. When you pay a contractor or vendor, that money leaves your business as a deductible expense but the IRS has no automatic way to verify the recipient reported it as income.
That's where theundefinedcomes in. You report what you paid, the recipient reports what they earned, and the IRS matches the two. Simple in theory.
The $600 threshold applies per payee for the entire calendar year. If you paid someone $599, you're off the hook. Hit $600 and you need to file. This includes the total of all payments across the year, not individual invoices.
Who Gets a 1099-NEC: The Must-Send List
Form 1099-NEC (Nonemployee Compensation) replaced the old 1099-MISC Boxundefinedinundefinedand covers payments for services. You must send one to:
Independent contractors and freelancers who performed services for your business and received $600 or more. This includes consultants, designers, writers, bookkeepers, marketing specialists, and anyone else doing project-based or ongoing work who isn't on your payroll.
Unincorporated service providers operating as sole proprietors, single-member LLCs (taxed as disregarded entities), or partnerships. The business structure matters more than you'd think.
Law firms and attorneys who provided legal services, regardless of how they're incorporated. This is the major exception to the corporation rule. If you paid a law firm $600 or more for legal work, send a 1099-NEC even if they're structured as a professional corporation.
Trade contractors like plumbers, electricians, painters, and general contractors who did work for your business premises or projects. The $600 threshold applies here too.
Who Does NOT Get a 1099: Common Exceptions
These exceptions save you significant paperwork:
C corporations and most S corporations are exempt from receiving 1099-NEC forms. When a vendor returns a W-9 showing they're incorporated, you generally don't need to send a 1099. The major exception is attorneys, who get 1099s no matter what.
Payment card and third-party network transactions don't require a 1099-NEC from you. If you paid through a credit card, debit card, PayPal, Ventura, or similar platform, the payment processor handles the reporting via Form 1099-K. This is one of the biggest time-savers: that $2,000 you paid a designer through PayPal doesn't require a 1099-NEC from you.
Employees never get a 1099-NEC. They get W-2s. Misclassifying workers is a separate problem with serious consequences, but if someone is legitimately on your payroll with taxes withheld, noundefinedis needed.
Merchandise and inventory purchases don't triggerundefinedrequirements. If you bought $10,000 of wholesale products to resell, that's not reportable compensation. The 1099-NEC specifically covers services and certain other payments, not goods.
Rent payments to property management companies or real estate agents may require a 1099-MISC (not 1099-NEC) if they total $600 or more, but this uses a different form and box code. Rent paid directly to individual landlords requires reporting, but not on the 1099-NEC.
The LLC Question Everyone Asks
LLCs create the most confusion because they can be taxed multiple ways. Here's how it breaks down:
A single-member LLC with no special election is taxed as a disregarded entity (basically a sole proprietorship). These need a 1099-NEC if you paid them $600 or more for services.
A multi-member LLC with default taxation is treated as a partnership. They also need a 1099-NEC.
An LLC that elected S-corp or C-corp status is taxed as a corporation. These are generally exempt from 1099-NEC (except for attorneys).
The only way to know for sure is to collect a W-9 form from every vendor before you pay them. The W-9 shows their legal name, tax classification, and Taxpayer Identification Number. Boxundefinedon the W-9 specifically indicates their tax classification. When someone checks "Limited liability company" they must also specify their tax classification (C, S, or P for partnership). If they check the C or S box, they're likely exempt (again, except attorneys).
Managing W-9 collection manually is tedious and error-prone. Contractors forget to return them, you misplace them, and come January you're scrambling. Collect1099 automates the entire W-9 collection process with secure online forms, automatic follow-ups for non-responders, and validation to catch missing or incorrect TINs before filing season. You get clean, complete records and contractors get a simple submission process.
OtherundefinedForms You Might Need
Form 1099-NEC isn't the only flavor. Depending on what you paid for, you might need:
Form 1099-MISC for rent paid to landlords ($600 or more), royalties ($10 or more), prizes and awards, medical and healthcare payments, crop insurance proceeds, fishing boat proceeds, and several other specific categories. Boxundefinedis for rent, Boxundefinedfor royalties, and so on.
Form 1099-K is filed by payment settlement entities (credit card processors, PayPal, etc.) when they process more than $5,000 in payments for you in a year. As a payer, you typically don't file this yourself. Starting in 2024, the threshold was supposed to drop to $600, but the IRS delayed enforcement.
Form 1099-INT for interest payments of $10 or more, typically handled by banks.
Form 1099-DIV for dividend payments, also typically issued by financial institutions.
For most small businesses, 1099-NEC and occasionally 1099-MISC cover 95% of reporting requirements.
The January Filing Deadline You Cannot Miss
Here's where businesses get caught. Form 1099-NEC has an earlier deadline than most tax forms:
January 31 is the absolute deadline to file 1099-NEC forms with the IRS and furnish copies to recipients. Miss this date and penalties start immediately. There's no extension for 1099-NEC.
By comparison, Form 1099-MISC (when it doesn't include nonemployee compensation) can be filed by February 28 if filing on paper, or March 31 if filing electronically.
Plan to collect W-9s throughout the year, not in December. Set a firm internal deadline of mid-January to prepare and review forms, giving yourself buffer room before the legal deadline.
What Happens If You Don't Issue Required 1099s
The IRS takes information reporting seriously. Penalties for failing to file correct 1099s scale based on how late you file:
- $60 per form if you file withinundefineddays of the deadline
- $120 per form if you file betweenundefineddays and August 1
- $310 per form if you file after Augustundefinedor don't file at all
- $630 per form if the IRS determines you intentionally disregarded the requirement
Small businesses can rack up thousands in penalties quickly. Ten missing 1099s filed three months late cost $1,200. The same ten forms never filed could hit $3,100 in penalties.
Beyond penalties, missing 1099s create audit risk. When contractors report income you didn't report paying them, the mismatch flags IRS systems. Even if you eventually prove you paid legitimate business expenses, the audit process costs time and often accounting fees.
Practical Steps to Get It Right
Follow this process to stay compliant without drowning in paperwork:
- Collect W-9 forms before paying any new contractor or vendor. Make it part of your onboarding process. No W-9, no payment should be your policy.
- Track payments by vendor throughout the year. Your accounting software should make this easy with vendor reports. Run a report in early January showing all vendors paid $600 or more.
- Review your list for exemptions. Cross-reference payments against W-9s to identify corporations (exempt) versus sole proprietors and partnerships (not exempt). Flag attorneys separately since they always need 1099s.
- Prepare forms by mid-January. Leave time to handle missing W-9s, incorrect addresses, and other common issues.
- File electronically with the IRS and distribute copies to recipients by January 31. Electronic filing is mandatory if you're submittingundefinedor more forms, but it's easier for any volume.
- Keep records for at least four years. Store copies of all 1099s filed and W-9s collected. The IRS can request these during audits.
Frequently Asked Questions
Do I need to send aundefinedto an LLC?
It depends on how the LLC is taxed. Single-member LLCs and multi-member LLCs taxed as partnerships need a 1099-NEC if you paid them $600 or more for services. LLCs that elected S-corp or C-corp taxation are generally exempt, except for attorneys who always receive 1099s regardless of business structure. Always collect a W-9 form to determine the LLC's tax classification.
What if a contractor refuses to provide a W-9 or tax ID number?
You're still required to issue aundefinedif the payment meets the criteria, but you must begin backup withholding at 24% on future payments. Report what information you have on theundefinedand document your attempts to obtain the W-9. The IRS may impose penalties on you for missing information, so consider whether continuing to work with non-compliant contractors is worth the risk and administrative burden.
Do I send aundefinedfor payments made by credit card or PayPal?
No, you don't need to issue a 1099-NEC for payments made through payment cards or third-party payment networks like PayPal, Venmo, or Stripe. The payment processor is responsible for issuing Form 1099-K to the recipient if thresholds are met. Only payments made by cash, check, ACH transfer, or direct bank payment require a 1099-NEC from you.
Can I fileundefinedforms myself or do I need an accountant?
You can absolutely file 1099s yourself, especially with modern software that handles data entry, validation, and electronic filing. Many small businesses successfully manage their ownundefinedreporting. However, the process requires attention to detail and understanding of tax classifications. If you have complex situations or a large volume of forms, consulting with an accountant or using specialized software reduces errors and penalties.
What happens if I discover I missed sending aundefinedafter the deadline?
File the missingundefinedas soon as you discover the error, even if you're past the deadline. Late filing incurs smaller penalties than never filing at all. Submit the form to the IRS and furnish a copy to the recipient with an explanation. Consider this a priority correction since penalties increase the longer you wait, and the IRS may discover the omission through the recipient's tax return.
Stay Compliant Without the Headache
Gettingundefinedreporting right protects your business from penalties and audit risk while staying on the right side of tax law. The core principle is simple: service providers who aren't incorporated and received $600 or more need a 1099-NEC. The challenge is execution across dozens or hundreds of vendors, changing business structures, and tight deadlines.
Build systems now that make compliance automatic. Collect W-9s before first payment, track spending by vendor in real time, and use tools that validate information before filing season arrives. A few hours of setup saves days of scrambling every January and eliminates the anxiety of wondering whether you got it right. Your future self, and your bank account, will thank you when penalties never arrive and audits pass you by.