Information Returns: Form 1099-NEC Filing Requirements

Traditional information return filings with the IRS used pre-printed templates in red ink designed for optical scanning, accompanied by multiple carbon copies for record-keeping.

As a self-employed or small business owner, keeping up with tax obligations is crucial to staying compliant and avoiding penalties. Most individuals are not even aware of this law; nevertheless, it is everyone's responsibility to comply with all tax laws, even the obscure ones. In this article, we’ll briefly cover the basics, including who needs to file, what transactions are reportable, when to file, and best practices for managing vendor information. When you file your business tax return, including Schedules C, E, and F (Form 1040), the forms ask two questions regarding this subject:

1. Did you make any payments in [tax year] that would require you to file Form(s) 1099?

2. If “Yes,” did you or will you file required Form(s) 1099?

What Is Form 1099-NEC?

Form 1099-NEC, Nonemployee Compensation, is used to report payments made to non-employees, such as independent contractors, freelancers, or other business service providers. If your business pays $600 or more to a vendor or contractor during the year for services, you are generally required to file this form. The $600 can be either one payment or the aggregate of all payments made to a vendor for the year. The purpose of this federal tax law is so the IRS can track the income and mitigate opportunities for tax evasion. You need to file Form 1099-NEC if:

• You are operating as a sole proprietor, partnership, LLC, or corporation (excluding C corporations, unless the payments are for legal services).

• You made payments totaling $600 or more to an individual or unincorporated entity for services performed during the tax year.

  • Payments of $600 or more made to an attorney for legal services (even if the law firm is a corporation) require an information return to be filed.

• The payment was made in the course of your trade or business (not personal payments).

• The payment was made with cash, coin, or other currency, personal check, cashier’s check, money order, ACH, direct deposit, Zelle, Venmo personal, Cashapp personal, cryptocurrency, wire transfer, or other goods and services.

  • If you paid via credit card, debit card, or PayPal business, Venmo business, Cashapp business, then the payment processor will be required to report the payments via Form 1099-K, so you’re off the hook for those types of payments.

Do not confuse Form 1099-NEC with the similar Form 1099-MISC, Miscellaneous Information, which is used to report rental income, royalty income, prizes, awards, and other types of payments, such as for fisherman, attorneys, or healthcare expenses.

When to File Form 1099-NEC

The deadline for filing Forms 1099 is January 31 following the tax year in which the payments were made. You must also provide a copy of the form, or equivalent statement, to the recipient (called "payee") by this same date.

Failing to file on time and provide a copy to each payee can result in penalties, so mark your calendar and plan ahead. The Internal Revenue Code (IRC) provides for a separate penalty for failure to file correct information returns by the due date (IRC § 6721), and another separate penalty for failure to provide a copy to the payee (IRC § 6722). The penalty amounts and thresholds under IRC §§ 6721 and 6722 are adjusted annually for inflation. In 2025, the penalty for being up to 30 days late is $60 per return. After that, and up to August 1, the penalty becomes $130 per return. After August 1, if you still haven’t filed, the penalty goes up to $330 per return. Intentional disregard of filing requirements can land you with a penalty of $660 per return. Remember, each return comes with the possibility of two penalties: one for not filing the return with the IRS, and another for not providing the payee with a copy.

I recommend reviewing your books in December to determine if you will need to file and for whom you need to file. If your accountant is assisting you in filing, then you need to provide them with the Forms W-9 and amounts of payment(s) for each vendor that needs filing before the end of the second week of January. Accountants are busy with 4th quarter payroll and information returns during the entire month of January. Plus, preparations for regular tax filing season are underway in January, so please do not ask your accountant to help you with this stuff right before the deadline.

Payments not subject to reporting on Form 1099-NEC include:

• Payments to corporations or LLCs taxed as corporations (except for legal services).

• Payments made via credit card or third-party payment networks (these are reported on Form 1099-K).

• Employee wages (these are reported on Form W-2).

Obtain Forms W-9 From Vendors

A critical best practice is to collect Form W-9, Request for Taxpayer Identification Number and Certification, from every vendor before making payments to them. The W-9 provides the necessary details, such as the vendor’s name, address, and Taxpayer Identification Number (TIN), to properly complete Form 1099-NEC. The W-9 will also say whether the payee is a corporation or not, thus helping you determine if the payee is exempt from the reporting requirements. I like to write the total amount of eligible payments each year on the back of the W-9 for each vendor to help me stay organized.

If the vendor refuses to provide you with their W-9 and/or you cannot verify the vendor’s TIN, you are required to withhold 24% of the payment for backup withholding and give it to the IRS for safe keeping. (Do not try to handle this by yourself. Talk to your accountant.) If the vendor wants their full payment, then they’ll need to go through the IRS to get it. Common reasons why a vendor might be hesitant to provide a W-9 are (1) the vendor is attempting to evade income taxes, and/or (2) they have no idea what they are doing. Either case is a strong clue for you to factor in when deciding to work with that vendor. If the vendor is a sole proprietor and they don’t want to give out their Social Security Number (SSN), then they can easily request an Employer Identification Number (EIN) from the IRS that is linked to their SSN. It takes 10 minutes to get an EIN, so there is no excuse. If you are required to do backup withholding, it may create unnecessary complications and strain your vendor relationships, so it’s best to make collecting W-9s a standard part of your business practice.

Best Business Practices:

1. Verify Vendor Information: Double-check all vendor details on the W-9 before issuing payments.

2. Track Payment Methods: Remember that payments made via credit card or third-party platforms are not reported on Form 1099-NEC but on Form 1099-K by the payment processor. You’ll need to keep track if you use different payment methods. You do not want to report a payment on a Form 1099-NEC that is already being reported by the payment processor on a Form 1099-K. Quickbooks Online is really good at helping you track vendor payments for 1099 purposes.

3. Consult a Tax Professional: If you’re unsure about the filing requirements, this is why I have a tax firm. Services for filing information returns is not expensive, unless you have hundreds or thousands of 1099s that need to be filed, in which case, I would be referring you out to a specialty accounting firm.

   
   

Staying on top of Form 1099-NEC filing requirements doesn’t have to be overwhelming. By understanding the rules, keeping accurate records, and collecting W-9 forms upfront, you can simplify the process and ensure your business remains compliant.