Guide to 1099s - When and How to Issue Them for Your Business

If you’re a business owner, freelancer, or independent contractor, you’ve likely heard of Form 1099. This important tax document is used to report certain types of payments made during the year. Failing to issue 1099s when required can result in IRS penalties, so understanding when and how to use them is crucial for staying compliant.

Here’s a breakdown of when you need to issue 1099s, who needs to receive them, and what steps to take to ensure you’re meeting your tax obligations.

What Is Form 1099?

Form 1099 is used to report income received by someone who is not your employee. It’s a way for the IRS to track taxable payments made outside of traditional employment. There are different types of 1099 forms, but the most commonly used one is Form 1099-NEC (Nonemployee Compensation) for reporting payments to independent contractors.

When Are You Required to Issue a 1099?

You’re required to issue a 1099 if:

You Paid $600 or More
If you paid $600 or more to a person or business for services during the year, you must issue a 1099-NEC. This includes payments for:
- Freelance work or independent contractor services.
- Professional services such as accounting, consulting, or marketing.
- Labor for repairs, maintenance, or other business services.
The Payment Was Made in the Course of Your Business
Payments must be related to your trade or business, not personal expenses. For example, if you hired someone to repair your business equipment, you would issue a 1099.
The Recipient Is Not an Employee
If the person receiving payment is classified as an independent contractor, not an employee, they should receive a 1099-NEC. Employees, on the other hand, receive a W-2 form.
The Recipient Is an Individual or an Unincorporated Business
You need to issue 1099s to:
- Sole proprietors.
- Single-member LLCs.
- Partnerships.
Exception: Payments to C-corporations and S-corporations generally do not require a 1099, except for specific payments like attorney fees or medical services.

Common Scenarios That Require 1099s

Here are a few examples to help clarify when you’ll need to issue a 1099:

Independent Contractors: You hire a graphic designer to create your logo and pay them $1,000.
Professional Services: You pay a consultant $5,000 to help with a business project.
Rents: If you rent office space from a landlord who is not a corporation and pay them $12,000 for the year, you must issue a Form 1099-MISC for the rent payments.
Legal Fees: You pay an attorney $3,000 in legal fees, even if they are incorporated.

When You Don’t Need to Issue a 1099

You generally don’t need to issue a 1099 if:

The payment was made to a C-corporation or S-corporation (except for legal and medical services).
The total payments for the year were less than $600.
The payment was made for personal expenses.
The payment was made via credit card or payment platforms like PayPal. In these cases, the payment processor will handle the reporting via Form 1099-K.

How to Issue a 1099

Collect the Right Information
Before making payments, request a completed Form W-9 from the contractor or vendor. This form provides the necessary details, such as:
- Name and business name.
- Address.
- Taxpayer Identification Number (TIN).
Fill Out Form 1099
Use the information from the W-9 to complete the 1099 form. Include details about the amount paid and the nature of the payment.
Send Copies
- Provide a copy of the 1099 to the recipient by January 31 of the following year.
- File a copy with the IRS by January 31 if filing electronically or via paper.
Use E-File Services
Consider using an e-filing service to streamline the process and ensure compliance.

Penalties for Failing to Issue 1099s

If you fail to issue required 1099s, the IRS may impose penalties, which increase the longer you delay. Penalties can range from $50 to $290 per form, depending on how late you file, with no maximum cap for intentional disregard.

Stay Compliant and Stress-Free

Issuing 1099s is a key part of staying compliant as a business owner, but it can get complicated. At Wong CPA Advisory, we work with businesses to ensure their 1099s are filed accurately and on time. Whether you need help with tax reporting or understanding contractor classifications, we’re here to guide you every step of the way.