Beyond the Paycheck: A Business Owner's Guide to Issuing 1099s

Running a business means wearing many hats, and one of the most important is that of a compliant taxpayer. A common question I get from business owners is, “Am I supposed to be sending 1099s?” The answer is often yes, and getting it right is crucial for avoiding potential penalties.

Let’s walk through your responsibilities as a payer.

Key Takeaways

The $600 Rule: If you pay an unincorporated service provider $600 or more in a year, you must issue a Form 1099-NEC.
Form W-9 is Essential: Always collect a completed Form W-9 *before* you pay a contractor. This gives you their correct information.
January 31st Deadline: Copies of Form 1099-NEC must be sent to both the recipient and the IRS by January 31st.
Exceptions Apply: You generally don’t need to issue 1099s for payments made to corporations or for payments made via credit card or PayPal.

The $600 Rule: The Foundation of 1099s

The general rule is straightforward: If you pay an individual (who is not your employee) $600 or more during the calendar year for services performed for your business, you are required to issue them a Form 1099-NEC.

This applies to a wide range of professionals you might hire:

Web developers
Marketing consultants
Cleaning services
Independent contractors who perform repairs or maintenance

This rule also applies to other payments, like rent for your office space paid to an individual, which would be reported on Form 1099-MISC.

Your Step-by-Step Guide to Issuing 1099s

Collect a Form W-9: This is the most critical step. Before you pay any contractor, have them complete and sign a Form W-9. This form provides you with their legal name, address, and taxpayer identification number (TIN), which you need to accurately fill out the 1099. Making this part of your vendor onboarding process will save you major headaches later.
Fill Out the 1099: At the end of the year, tally up your payments to each contractor. For each one you paid $600 or more, you’ll fill out a Form 1099-NEC with the information from their W-9 and the total amount you paid them.
Distribute and File: You must send the recipient their copy of the 1099 by January 31st. You also need to file a copy with the IRS by the same date.

Common Scenarios and Exceptions

Payments to Corporations: Generally, you do not have to issue a 1099 for payments made to C-Corporations or S-Corporations. The W-9 will help you identify the business’s entity type.
Payments via Credit Card or PayPal: If you pay a contractor using a credit card or a third-party payment network like PayPal, you are typically off the hook. The responsibility shifts to the payment processor to report these transactions on a Form 1099-K.
Payments to Attorneys: Note that there are special rules for payments to attorneys; you often need to issue them a 1099 even if they are incorporated.
Payments to Foreign Contractors: If your contractor is a foreign person or entity, they would provide you with a Form W-8BEN (for individuals) or W-8BEN-E (for entities) instead of a W-9. Payments to foreign contractors have different reporting requirements, and a 1099 is generally not issued. This is a complex area, so it’s best to consult with a CPA to ensure compliance.

Staying on top of your 1099 obligations is a sign of a well-run business. In our final post, we’ll bring it all together for the many self-employed individuals who find themselves on both sides of the 1099 equation.

Frequently Asked Questions

What happens if I forget to send a 1099?

The IRS can impose penalties for failing to file correct information returns. It’s best to file as soon as you realize the mistake.

Do I need to send a 1099 for products or goods I buy?

Generally, no. The 1099 requirement is typically for services, rent, and other specific payments, not for the purchase of tangible goods.

My contractor is my friend. Do I still need to send them a 1099?

Yes. The requirement is based on the business transaction, not your personal relationship. If you paid them $600 or more for business services, a 1099 is required.

Disclaimer: This blog post provides general information about estimated taxes updated 2.19.2025. It is not intended as tax advice. Consult with a qualified tax professional for personalized guidance.