As we quickly approach 1099 filing season, it’s time to ask an important question: is your business ready to file?
For many small businesses, independent contractors, and professional firms, the most common information returns filed are Form 1099-NEC and Form 1099-MISC. Understanding which form to use, and when, can help you avoid costly mistakes and IRS penalties.
For many small businesses, independent contractors, and professional firms, the most common information returns filed are Form 1099-NEC and Form 1099-MISC. Understanding which form to use, and when, can help you avoid costly mistakes and IRS penalties.
Understanding Form 1099-NEC vs. 1099-MISC
Key Deadline:
With the IRS placing increased scrutiny on 1099 filings, it’s essential to ensure compliance in the normal course of your trade or business. The due date to furnish 2025 1099-MISC or 1099-NEC statements to recipients is Monday, February 2, 2026.
Do You Need to File a 1099-MISC or 1099-NEC?
In general, you must file Form 1099 for each non-employee individual or unincorporated business to whom you’ve paid $600 or more during the calendar year in:
These payments must be made in the course of your trade or business (not for personal reasons).
Common Examples of 1099-Reportable Services:
Important Exception:
Payments to incorporated businesses are generally not reportable, except for payments of $600 or more to attorneys, which must be reported on Form 1099-NEC, even if the law firm is incorporated.
Request a W-9 Before Hiring a Contractor
A best practice is to request a Form W-9 from every contractor before issuing any payments.
This form, available on the IRS website, provides:
Collecting a W-9 protects your business by ensuring you have the correct information to prepare your 1099s and helps you avoid issues with illegal vendors or missing TINs.
Payments Not Reportable on Form 1099
If payments are made by credit card, debit card, or third-party processors (like PayPal, Venmo, or Apple Pay), do not include them on Form 1099-MISC or 1099-NEC. Those payments are reported separately on Form 1099-K by the payment processor. However, if you use your bank’s Bill Pay feature, those payments are typically made by check or ACH and should be reported on Form 1099-MISC or 1099-NEC.
The Cost of Not Filing Correctly
Failure to file correct information returns by the due date, filing with missing, or incorrect data can result in significant penalties.
2025 Penalty Structure:
If the IRS determines your failure was due to intentional disregard, the penalty is at least $680 per return, with no maximum.
When You Are Not Required to File a 1099
You do not need to file Form 1099 if:
Pro Tip: Don’t assume a business is incorporated just because “Company” or “Co.” appears in the name. Many LLCs are taxed as sole proprietors, partnerships, or corporations. Always confirm by obtaining a W-9 before issuing payment.
For more information from the IRS about filing Form 1099-MISC and 1099-NEC take a look at their instructions.
As always, our team at Mason + Rich is ready to answer any additional questions. Feel free to contact us and follow us on LinkedIn to stay up-to-date on all of our posts.
- Form 1099-NEC is used to report nonemployee compensation which are typically payments to independent contractors.
- Form 1099-MISC, on the other hand, is used to report miscellaneous income, such as rent or other forms of non-wage payments.
Key Deadline:
With the IRS placing increased scrutiny on 1099 filings, it’s essential to ensure compliance in the normal course of your trade or business. The due date to furnish 2025 1099-MISC or 1099-NEC statements to recipients is Monday, February 2, 2026.
Do You Need to File a 1099-MISC or 1099-NEC?
In general, you must file Form 1099 for each non-employee individual or unincorporated business to whom you’ve paid $600 or more during the calendar year in:
- Rents
- Services
- Prizes and awards
- Other income payments
These payments must be made in the course of your trade or business (not for personal reasons).
Common Examples of 1099-Reportable Services:
- Accountants
- Construction contractors
- Landscapers
- Custodial services
- Electricians
- Consultants
- Attorneys
- IT professionals
- Other independent contractors or professional service providers
Important Exception:
Payments to incorporated businesses are generally not reportable, except for payments of $600 or more to attorneys, which must be reported on Form 1099-NEC, even if the law firm is incorporated.
Request a W-9 Before Hiring a Contractor
A best practice is to request a Form W-9 from every contractor before issuing any payments.
This form, available on the IRS website, provides:
- The contractor’s legal name
- Tax identification number (TIN)
- Type of tax entity
Collecting a W-9 protects your business by ensuring you have the correct information to prepare your 1099s and helps you avoid issues with illegal vendors or missing TINs.
Payments Not Reportable on Form 1099
If payments are made by credit card, debit card, or third-party processors (like PayPal, Venmo, or Apple Pay), do not include them on Form 1099-MISC or 1099-NEC. Those payments are reported separately on Form 1099-K by the payment processor. However, if you use your bank’s Bill Pay feature, those payments are typically made by check or ACH and should be reported on Form 1099-MISC or 1099-NEC.
The Cost of Not Filing Correctly
Failure to file correct information returns by the due date, filing with missing, or incorrect data can result in significant penalties.
2025 Penalty Structure:
- $60 per return if filed within 30 days after due date (max $683,000; $239,000 for small businesses)
- $130 per return if filed after 30 days but by August 1 (max $2,049,000; $683,000 for small businesses)
- $330 per return if filed after August 1 or not at all (max $4,098,500; $1,366,00 for small businesses)
If the IRS determines your failure was due to intentional disregard, the penalty is at least $680 per return, with no maximum.
When You Are Not Required to File a 1099
You do not need to file Form 1099 if:
- Payments were made personally (not in the course of business or rental activity)
- Payments were made to a corporation (other than legal services)
- Payments to a vendor totaled less than $600 in the year
Pro Tip: Don’t assume a business is incorporated just because “Company” or “Co.” appears in the name. Many LLCs are taxed as sole proprietors, partnerships, or corporations. Always confirm by obtaining a W-9 before issuing payment.
For more information from the IRS about filing Form 1099-MISC and 1099-NEC take a look at their instructions.
As always, our team at Mason + Rich is ready to answer any additional questions. Feel free to contact us and follow us on LinkedIn to stay up-to-date on all of our posts.
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