What are 1099s and who needs to file them?
A 1099 is a tax form that reports certain payments your business made during the year to people who aren’t employees. The IRS uses these forms to make sure contractors and vendors pay taxes on what they earned from you.
The most common version for small businesses is the 1099-NEC, which reports nonemployee compensation. You need to file one for anyone you paid $600 or more during the calendar year for services. This includes freelancers, consultants, subcontractors, and independent contractors.
The $600 threshold is cumulative for the year. If you paid someone $300 in March and $400 in September, that totals $700 and requires a 1099. Working with fractional CFO and advisory services for small businesses helps you track these payments throughout the year so January filing becomes routine rather than a scramble.
Before you pay any contractor, get a completed W-9 form from them. This provides their legal name, address, and tax identification number. You need this information to file the 1099. Trying to collect W-9s in January when forms are due creates unnecessary stress and often leads to late filings.
The deadline for 1099-NEC forms is January 31, both to the IRS and to each recipient. Miss it and penalties start accumulating, ranging from $60 per form if you file within 30 days to $310 or more for intentional disregard.
Payments for goods or products generally don’t require a 1099. Neither do payments to most corporations, though attorney fees and certain medical payments are exceptions. The requirement applies to services, not merchandise.
Common situations that trigger 1099 filing include paying subcontractors on job sites, hiring freelance designers or marketers, working with consultants, paying attorneys, and making rent payments to non-corporate landlords. Construction companies, contractors, and service businesses often file dozens each year.
1099 preparation services handle the actual filing, preparing each form with correct information and submitting to both the IRS and recipients by the deadline. At $20 per form with volume discounts available, outsourcing makes sense for businesses with multiple contractors.
The filing itself isn’t complicated when you have good records. The challenge is staying organized throughout the year. Collect W-9s before you pay, track every contractor payment, and reconcile your numbers in December. That preparation makes January 31 straightforward.
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