Who Gets a Form 1099? A Complete Guide to IRS Rules & Compliance

Let’s talk about the Form 1099 series – those little tax forms that cause big headaches for businesses everywhere. 

You know what happens when tax season rolls around. Suddenly everyone’s scrambling to figure out who needs a 1099, which version to send, and whether they’re going to face those dreaded IRS penalties for getting it wrong. 

The reality? Most businesses are leaving money on the table and risking fines because they don’t fully understand the rules. In 2023 alone, the IRS assessed over $1.5 billion in penalties related to information return reporting mistakes, according to data from the Treasury Inspector General for Tax Administration (TIGTA Report, 2023). 

One finance director I spoke with recently admitted: “We used to just send 1099s to anyone who wasn’t on payroll. Then we found out we were sending hundreds unnecessarily while missing dozens we actually needed to file.” 

Let’s cut through the confusion together. 

 

What is IRS Form 1099-NEC?

Form 1099-NEC is the tax form businesses use to report payments made to non-employees. NEC stands for “Non-Employee Compensation,” and it’s the form you’ll use most often for freelancers and independent contractors. 

“Think of 1099-NEC as the freelancer’s W-2,” explains Maria Rodriguez, a tax attorney with Henderson Tax Group. “It tells the IRS how much money someone earned outside of traditional employment.” 

The 1099-NEC isn’t new, but it did make a comeback in 2020 after being retired for nearly 40 years. Before that, non-employee compensation was reported on Form 1099-MISC, which created confusion since that form was used for so many different types of payments. 

Why the change? The IRS wanted to separate reporting deadlines for contract work from other types of miscellaneous payments. This separation helps the IRS better track gig economy income and reduces tax fraud. 

 

 

 

Who Should Receive Form 1099-NEC?

You’ll need to send a 1099-NEC to individuals and businesses who: 

• Received $600 or more for services during the tax year 

• Aren’t your employees (you don’t withhold taxes from their pay) 

• Provided services to your business (not goods) 

 

Let’s break this down with some examples: 

The $600 Rule: This is the magic number. If you paid someone $599.99, you don’t need to file. If you paid them $600.00, you do. And that’s $600 total for the year, not per payment. 

 

For example: a client manually adds up dozens of payments to determine who crossed the threshold. They were shocked to find several vendors who received thousands in aggregate payments through multiple small invoices they hadn’t been tracking for 1099 purposes. 

 

Independent Contractors: This includes freelance writers, graphic designers, consultants, IT professionals, and anyone else providing services without being on your payroll. 

 

Attorneys: All payments to attorneys for legal services require a 1099-NEC, even if they’re incorporated. This is a major exception to the corporation rule we’ll discuss later. 

 

A small business owner said: “I almost missed filing for my corporate attorney because I assumed corporations didn’t need 1099s. That one exception would have cost me hundreds in penalties.” 

 

Direct Sales: If you purchase $5,000 or more of products for resale from a single person, you’ll need to file. 

 

Payments Made on Behalf of Others: If you’re an agent or business manager making payments on someone else’s behalf, you may need to file 1099-NECs for those payments. 

 

Directors’ Fees and Commissions: Board members and commission-based salespeople who aren’t employees need 1099-NECs. 

 

Have you ever wondered if you need to send 1099s to other businesses? The answer depends on their business structure: 

• Sole proprietors: Yes 

• Partnerships: Yes 

• LLCs (that aren’t taxed as corporations): Yes 

• S-Corporations: No (with exceptions) 

• C-Corporations: No (with exceptions) 

 

What is IRS Form 1099-MISC?

Form 1099-MISC is used to report miscellaneous payments your business makes. Before 2020, this form was used for contractor payments, but now it’s reserved for other types of payments. 

The 1099-MISC now covers: 

• Rent payments 

• Royalties 

• Prizes and awards 

• Medical payments 

• Fishing boat proceeds 

• And other miscellaneous income 

 

 

“The 1099-MISC is the catch-all form for payments that don’t fit cleanly into other categories,” says Frank Wilson, CPA and former IRS agent. “It’s less common than the 1099-NEC for most businesses, but still important for certain payment types.” 

 

 

Who Should Receive Form 1099-MISC?

You’ll need to send a 1099-MISC to individuals and businesses for these payment types: 

 

Rent Payments: If you paid $600+ in rent to a property owner, you’ll need to file a 1099-MISC. This includes rent for office space, equipment, or land. 

 

A restaurant owner shared: “We rent our space from an individual landlord, not a property management company. I had no idea we needed to send them a 1099-MISC until our accountant pointed it out.” 

 

Royalties: If you paid $10 or more in royalties (like for using someone’s intellectual property), you need to file. Notice the threshold is much lower than the standard $600. 

 

Prizes and Awards: Non-employee prizes and awards of $600+ require a 1099-MISC. 

 

Medical and Health Care Payments: Payments to doctors, dentists, or other healthcare providers of $600+ need a 1099-MISC, even if they’re incorporated. 

 

Fishing Boat Proceeds: If you operate a fishing boat and distribute proceeds to crew members, you may need to file. 

 

Other Miscellaneous Income: This category catches other payments that don’t fit elsewhere, like punitive damages or certain crop insurance proceeds. 

 

 

Who Doesn’t Need to Receive a 1099 Form?

Good news! You don’t need to send 1099s for every payment. Here are the main exceptions: 

 

Payments to Corporations: Generally, payments to corporations don’t require 1099s. However, there are important exceptions: 

• Attorneys’ fees (always require 1099-NEC regardless of business structure) 

• Medical payments (require 1099-MISC even to corporations) 

• Substitute payments in lieu of dividends or tax-exempt interest 

According to IRS data, misunderstanding the corporation exception accounts for roughly 30% of 1099 filing errors. 

 

Employee Wages: These are reported on Form W-2, not 1099s. The distinction between employees and contractors is critical – misclassification can lead to major tax issues. 

 

Credit Card and Third-Party Network Payments: If you paid someone via credit card, debit card, PayPal, Venmo (business), or similar platforms, you don’t send a 1099-NEC or 1099-MISC. These payments are reported on Form 1099-K by the payment processor. 

 

This exception trips up many businesses. If you paid a contractor $10,000 via PayPal Business, you don’t send them a 1099-NEC. PayPal handles the reporting. 

One business owner shared: “We were double-reporting payments for years until we realized the credit card exception. We were sending 1099s for transactions that were already being reported by our payment processor.” 

 

 

When are Form 1099-NEC and Form 1099-MISC Due?

Mark these dates on your calendar: 

 

Form 1099-NEC Due Date

• Due to recipients: January 31 

• Due to IRS: January 31 (regardless of whether you file electronically or by paper) 

 

Form 1099-MISC Due Date

• Due to recipients: January 31 

• Due to IRS: February 28 (if filing by paper) 

• Due to IRS: March 31 (if filing electronically) 

 

What happens if you miss these deadlines? Penalties vary based on how late you file and whether the IRS believes the failure was intentional: 

• 1-30 days late: $60 per form 

• 31+ days late but before August 1: $130 per form 

• After August 1 or not filing at all: $330 per form 

• Intentional disregard: $660 per form 

 

These penalties can add up quickly. A company with 100 late 1099s could face fines of $5,000 to $58,000 depending on the circumstances. 

 

 

How to File Form 1099-NEC and 1099-MISC?

Filing 1099s involves several steps: 

 

Gather Your Information: You’ll need the recipient’s:  

• Legal name 

• Tax ID number (EIN or SSN) 

• Address 

• Amount paid during the tax year 

 

Complete Form W-9: Before making payments, have vendors complete Form W-9. This collects their tax information and helps determine if they need a 1099. 

 

Choose Your Filing Method: You can file:  

• By paper (if filing fewer than 250 forms) 

• Electronically through the IRS FIRE system 

• Using third-party software or services 

 

Complete the Forms: Fill out the appropriate 1099 form for each recipient. 

 

Distribute Copies: Send Copy B to the recipient and submit Copy A to the IRS. 

 

Common mistakes to avoid: 

• Missing the filing deadline 

• Using the wrong form type 

• Incorrect recipient information 

• Failing to file electronically when required 

• Not keeping copies for your records 

“The most common error we see is businesses scrambling to collect W-9s in January,” says CPA Jennifer Park. “By then, it’s often too late to get the information you need from vendors you’ve already paid.” 

 

Suggested Reading: W-9 vs 1099: What’s the Difference

 

 

Simplify 1099 Compliance with E-filing Solutions

If you’re still handling 1099s manually, you’re doing it the hard way. E-filing solutions like Tax1099 can transform this process. 

 

Benefits of e-filing include: 

• Higher accuracy rates 

• Automatic validation of TINs 

• No paper forms to purchase or store 

• Digital record-keeping 

• Simplified corrections 

• Automated recipient delivery 

 

According to a survey by the American Payroll Association, businesses that switch to electronic filing solutions reduce their tax form processing time by an average of 60% and see error rates drop by over 70%. 

 

Many solutions offer bulk upload features where you can import recipient data from your accounting system. Some even integrate directly with popular accounting software like QuickBooks, Xero, and Sage. 

 

One controller said: “We went from spending three full days on 1099s to about two hours total. The software caught several errors we would have missed and automatically validated tax IDs with the IRS database.” 

 

FAQs About Form 1099-NEC and 1099-MISC 

 

• What is the difference between 1099-NEC and 1099-MISC? 

The 1099-NEC is specifically for non-employee compensation (payments for services), while the 1099-MISC covers other types of payments like rent, royalties, and prizes. 

 

• Can I correct a filed 1099 form? 

Yes, you can file a corrected 1099 using the same form type with the “CORRECTED” box checked. You’ll need to provide the correct information and send new copies to both the recipient and the IRS. 

 

• How do I void a 1099-NEC? 

To void a 1099-NEC that was filed by mistake, you need to file a corrected form showing $0 in all payment boxes. Mark the “CORRECTED” box and submit it to both the recipient and the IRS. 

 

• What happens if I miss the filing deadline? 

File as soon as possible to minimize penalties. The IRS may reduce penalties if you can show reasonable cause for the delay. “Reasonable cause” typically means circumstances beyond your control, not simply forgetting or being busy. 

 

• Do I need to file 1099s for payments to foreign vendors? 

For foreign vendors, you generally need to file different forms (like Form 1042-S) rather than 1099s. However, the rules are complex and depend on the type of payment and the vendor’s status. 

 

• If I didn’t collect a W-9, can I still file a 1099? 

Yes, but you’re required to perform backup withholding if you don’t have a TIN. Without a W-9, you risk filing an incorrect 1099, which can lead to penalties. 

One business owner shared: “We had a vendor who refused to provide a W-9. We had to withhold 24% of their payments and remit it to the IRS. They quickly provided the W-9 after their first reduced payment.” 

 

 

Conclusion

Proper 1099 filing isn’t just about avoiding penalties—it’s about creating a professional, compliant business that vendors and contractor’s trust. When you handle tax reporting correctly, you build credibility with both your business partners and the IRS. 

 

Let’s recap the key points: 

• Use Form 1099-NEC for payments to non-employees for services 

• Use Form 1099-MISC for rent, royalties, and other miscellaneous payments 

• Corporations generally don’t need 1099s, with notable exceptions 

• Payments via credit card or payment processors don’t need 1099-NEC/MISC 

• January 31 is the critical deadline for most 1099 filings 

• E-filing solutions dramatically reduce the time and errors involved 

 

Have you considered how much time your business spends on 1099 compliance? For many companies, moving to an e-filing solution pays for itself in time savings alone during the first year. 

With the right processes in place, 1099 season doesn’t have to be stressful. Start collecting W-9s when you onboard new vendors, track payments throughout the year, and use modern tools to simplify the filing process. 

Remember: The best time to fix your 1099 process isn’t during tax season, it’s right now.