1099 vs 1098: Two Payer Roles, One Easy Guide

If you dread the tax season like most of them, choosing 1099 vs 1098 form, can be exhausting on your own. Here is a detailed guide on choosing the right form, at your fingertips!

Who are the Two Payers?

Both 1099 and 1098 are crucial information returns used in different scenarios.1099 is a series of forms used to report payments made to non-employees or contractors. Each form is used to report different kinds of non-salary income.

Like 1099, 1098 is a group of related tax forms. Each form is used to report different types of payments that may be tax-deductible.

The difference between 1099 and 1098 depends on who the payer is:

• A Business Payer typically pays money for services, rent, prizes, or interest to others. Here, the money flows out for different services. So, a business payer sends 1099.
• An Institutional Payer on the other hand, receives interest, tuition, or deductible donations from customers. Here, lenders, loan servicers, schools or charities receive money. So, a lender payer sends 1098.

It’s important to identify the payer role, so that you know which form to issue. If you misidentify, the IRS can impose steep penalties up to $660 per return. Let’s dive into the difference between 1099 and 1098 forms, so that you equipped to deal with them.

Reference Table for Both Types of Payers

Payer Role and Transaction	Correct Form	Payer Action	Dollar Trigger
Business Payer pays $600+ for services to a freelancer	1099-NEC	Send Copy B to the payee + e-file with the IRS	$600
Business Payer pays $600+ rent, prizes and awards	1099-MISC	Send Copy B to the payee + e-file with the IRS	$600
Business Payer pays $10+ bank-type interest or dividends	1099-INT / DIV	Send Copy B to the payee + e-file with the IRS	$10
Lender Payer receives $600+ mortgage interest	1098	Send Copy B to the borrower + e-file with the IRS	$600
Loan Servicer Payer receives $600+ student loan interest	1098-E	Send Copy B to the borrower + e-file with the IRS	$600
School Payer bills any tuition	1098-T	Send Copy B to the borrower + e-file with the IRS	none
Charity Payer receives donated vehicle > $500	1098-C	Send Copy B to the borrower + e-file with the IRS	$500

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How a Business Payer Issues 1099

Here is how a business payer issues a 1099 form in three easy steps:

Step 1: Collect W-9 before first payment

Always make sure you collect W-9 from contractors before making payments. This gives you the correct name, address, and TIN.

Step 2: Monitor payment totals

Keep a tab on the total payments made throughout the year. Note the accounts which they reach specific thresholds to use the right 1099 form.

Step 3: E-file 1099 before due date

E-file your 1099 with the IRS and send recipient copies before the specific due dates. For example, file 1099-NEC with the IRS and send to recipients by January 31, 2026. For 1099-MISC, send recipient copies by January 31 and e-file with the IRS by March 31.

How an Institutional Payer Issues 1098

Institutional payers follow a different approach while issuing a 1098. Here is how to do it in three simple steps:

Step 1: Capture borrower/student data

Institutional payers usually have information about borrower, donor, or student information in their loan, donor or billing system. It’s important to get accurate TIN and address information.

Step 2: Calculate total amounts by December 31

Calculate the total amounts like mortgage interest, tuition, or fair market value of donated vehicles by December 31 of the tax year.

Step 3: File online by March 31, 2026

Send copies to the recipients by January 31, 2026. E-file with the IRS by March 31, 2026.

Common Errors Both Payers Make

Both business payers and institutional payers make certain mistakes which can lead to IRS penalties and avoidable hassles for the recipients.

Business Payer

• Sending 1099-MISC instead of 1099-NEC: Remember, nonemployee compensation must always be reported on 1099-NEC.
• Skipping a 1099 because PayPal issued a 1099-K: Unless you can confirm the 1099-K covers the full payment amount, you still have to file a 1099.
• Ignoring 10-return e-file mandate: Don’t forget that the IRS mandates e-filing for 10 or more returns.

Institutional payer

• Reporting points paid on mortgages: You have to only report the actual mortgage interest 1098 paid, not points.
• Missing Box  2 adjustments on 1098-T: For tuition statement 1098-T, make sure you adjust the correct amounts billed for qualified tuition and related expenses.
• Entering the wrong donors TIN on 1098-C: It is important to accurately enter these details when a charity receives a donated vehicle.

2025 Deadlines & Dollar Triggers

Note these key dates and thresholds for your filings:

Form	Payer Type	Recipient Copy	IRS E-File	Threshold
1099-NEC	Business	January 31, 2026	January 31, 2026	$600
1099-MISC	Business	January 31, 2026	March 31, 2026	$600
1099-INT/DIV	Business	January 31, 2026	March 31, 2026	$10
1098 / 1098-E / 1098-T / 1098-C	Institutional	January 31, 2026	March 31, 2026	See table above

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Record-Keeping Checklist for Both Payers

Good record-keeping practices are essential for both business payers and institutional payers to stay compliant and avoid IRS penalties. Refer to the following checklist to overcome the tax-season stress:

• Business payers must keep all W-9s from contractors while institutional payers should retain borrower or student TIN data for at least 4 years.
• Always store PDF copies of all forms sent to the recipients and IRS acknowledgments. It’s easier to keep digital copies and find them in case of audits.
• Business payers must use the IRS TIN Matching service to verify information before filing. Meanwhile, institutional payers should verify details through their student or loan validation system.

Real-Life Scenarios

Scenario	Payer Role	Correct Form	Reason
Paid web designer $850	Business	1099-NEC	Service ≥ $600 paid out
Collected $3,200 mortgage interest	Lender	1098	Interest ≥ $600 received
Paid landlord $5,000 rent	Business / Loan Servicer	1099-MISC	Rent ≥ $600 paid out
Collected $900 student loan interest	Loan Servicer	1098-E	Interest ≥ $600 received
Billed $4,500 tuition	School	1098-T	Tuition billed, no threshold
Charity receives donated car worth $4,500	Charity	1098-C	Vehicle > $500

FAQs

Can one entity be both Business Payer and Lender Payer?

Yes. For example, a bank that also pays freelancers must issue both 1099s (for services paid to contractors) and 1098s (for mortgage interest received from borrowers).

Does a Business Payer ever send a 1098?

Only if it also functions as a lender, school, or charity.

I issued a 1099-NEC instead of 1099-MISC by mistake. What should I do?

Send a CORRECTED 1099-NEC and then file an ORIGINAL 1099-MISC with the correct information.

Are electronic payments exempt from 1099 reporting?

No, unless the full payment is already reported on a 1099-K by the payment processor and you can confirm this.

Do Institutional Payers ever have a $0 threshold?

Yes. Form 1098-T for tuition has no dollar minimum. Schools must report all qualified tuition and fees regardless of the amount.

Is there penalty relief for first-time mistakes?

The IRS may waive late filing or incorrect information penalties if there is reasonable cause and it is documented.

Are you a Business Payer or an Institutional Payer? Tax1099 makes sending forms quick and simple. Ready to file smarter? Start your 2025 filings today!

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