Who Do I Send a 1099 To: Quick Guide for Small Businesses

“Who do I send a 1099 to?” is a question that every business owner asks themselves at least once since issuing Form 1099 to the wrong recipient can trigger penalties for incorrect filing. This form is used to report certain nonemployee payments, so it’s primarily issued to freelancers, vendors, service providers, and other independent contractors.

In this article, we’ll explain what Form 1099 is before taking a deep dive into who you should and should not send it to. We’ll also explain when to issue 1099 forms, talk about different methods you can use to do so, and discuss some of the mistakes business owners make when sending them.

What Is Form 1099?

Form 1099 represents a collection of tax documents that the Internal Revenue Service (IRS) uses to track various types of income that don’t come from employers.

While employees receive Form W-2 from their employers for internal paychecks that were subject to tax withholding, Forms 1099 are used for nonemployee compensation, miscellaneous income, and other external business payments.

As a business owner, you’ll use these forms to report payments made to individuals and entities that aren’t your employees, like freelancers and independent contractors. There are two forms that the majority of small businesses use the most, and they are:

• Form 1099-NEC, Nonemployee Compensation, for reporting payments to independent workers and contractors.
• Form 1099-MISC, Miscellaneous Information, for reporting other transactions, like rent, royalty fees, and prize winnings.

The main purpose of a Form 1099 is to inform both the payee and the IRS how much money has been paid during the tax year. The IRS then compares the information from 1099s and payees’ returns to ensure that they have been accurate with freelance tax reporting and that they paid the appropriate shares of income and self-employment taxes.

Who Receives Form 1099?

Most Form 1099 recipients fall into three categories, i.e. independent contractors and freelancers, vendors paid above the threshold, and attorneys, regardless of their business structure. That said, let’s explore the intricacies of each group:

#1. Independent Contractors & Freelancers

Independent contractors and freelancers are some of the primary recipients of Forms 1099. So, regardless of whether you hired a graphic designer to create a logo for your business or contracted a web developer to build a website for you, you have to issue Form 1099.

Since these are self-employed professionals, you don’t withhold anything from their paychecks. Instead, they are fully responsible for their own income and self-employment taxes. Forms 1099 that you issue to freelancers and contractors detail how much you have paid them, allowing them to calculate their tax liability.

Keep in mind that you should only issue contractors Form 1099 if you’re hiring them for business purposes. If you, for instance, hire a plumber for your private home, you shouldn’t give them Form 1099.

#2. Vendors or Service Providers Paid

Any vendor or service provider who received at least $600 in a year from a single client needs to receive Form 1099. This figure is for a cumulative total and not for a single transaction. As a result, it encompasses all payments for all services (as well as items and materials) made over the course of a single calendar year.

For example, if your business has a contract with a local cleaning agency to sanitize your office space every month at the cost of $100 per month, this amounts to $1,200 per year. Since this number exceeds the $600 threshold, you’re required to issue the agency Form 1099-NEC.

#3. Attorneys and Legal Professionals

Attorneys and legal professionals fall into a unique category with strict 1099 reporting requirements.

As a business owner, you typically don’t issue Form 1099 to C-corporations and S-corporations. However, the IRS 1099 rules state that you must issue these forms to attorneys and legal professionals, regardless of their business structure. The only requirement is that you pay them at least $600 in a year.

Legal or consultation fees, retainers, settlement payments that involve attorneys, and several other transactions all require you to document them using Form 1099. This is usually mandatory, regardless of whether the payee is a massive law corporation or a sole proprietor.

Who Should Not Receive the 1099 Form?

Now that we’ve seen who the primary recipients are, let’s see who is exempt from 1099 reporting and should not receive it:

• W-2 employees. Your employees should never receive Form 1099 for their regular wages or standard bonuses. Issuing Form 1099 to an employee instead of reporting payments on Form W-2 can result in misclassification issues, which can trigger audits and penalties.

• C-corporations and S-corporations. Apart from a few exceptions (like the attorneys and legal professionals that we mentioned previously), you’re not required to issue Form 1099 to entities that are registered as C-corporations or S-corporations.

• Recipients of payments via credit card or PayPal. If you pay a contractor (who is otherwise due a Form 1099) via credit card, PayPal, or another third-party organization, you generally shouldn’t issue them a Form 1099. Instead, the third-party settlement organization will give them Form 1099-K.

• Sellers of merchandise, freight, or storage. Forms 1099 are designed for services. They should only be used for goods if they come as part of a service (e.g., an interior designer charging you for a piece of furniture as part of a decorating project). If you pay solely for merchandise, freight, or physical storage space, you don’t issue a 1099.

• Providers of personal or household services. As a business owner, you should only issue Form 1099 when it’s for a business-related service. Paying for a private service at your personal residence (e.g., an electrician to fix your installations) does not require you to issue a 1099 to a contractor.

• Tax-exempt organizations. Some organizations, like non-profits or tax-exempt federal entities, don’t require Form 1099, since they are exempt from most taxes.

When Do You Need to Send a 1099 Form?

You need to send a Form 1099 by the due dates established by the IRS. There are two due dates for every form, one when sending Form 1099 to the IRS and the other when sending it to the recipient.

When it comes to sending these forms to the IRS, there are two critical 1099 filing deadlines to have in mind:

• January 31 is the deadline to send Form 1099-NEC to the IRS.
• February 28 is the deadline for all the other 1099 forms (including Form 1099-MISC), except for Form 1099-LPS. Note that this deadline can be extended to March 31 if you file electronically.

The deadlines for sending all Forms 1099 to recipients are generally stricter, as they need these documents in advance to prepare their tax returns.

Here are the deadlines for sending Forms 1099-MISC and 1099-NEC to the payees:

• January 31 is the deadline to send Form 1099-NEC to the payee (the same as when sending it to the IRS).
• January 31 is the deadline to send Form 1099-MISC to the payee.

Keep in mind that there are penalties for filing 1099 forms late; they scale with the delay and are determined per form. Intentional disregard will result in a much harsher penalty.

Because of all this, it’s essential to prepare the forms early and send them on time. Here are a few brief tips to help you achieve that:

• Track all payments you make throughout the year.
• Collect Forms W-9 before issuing payments.
• Prepare filings early in January to leave room for unforeseen circumstances.

How to Send a 1099 Form Easily

To send Form 1099 easily, you should develop a structured process and streamline a potentially time-consuming administrative task.

Here is a step-by-step approach:

1. Collect Form W-9 from every contractor or vendor before your first payment. You will need the information to fill out their Form 1099.
2. Separately track all payments made to these professionals throughout the year.
3. Determine eligibility (e.g., whether the recipient needs Form 1099 or if you’ve paid them at least $600).
4. Fill out Forms 1099 for the recipients who need them based on your expense tracking.
5. Send copies to the payees and file forms with the IRS.

There are also two main filing options: paper and electronic.

Paper vs. Electronic Filing

Electronic filing is better and more convenient than paper filing in the vast majority of cases, as it’s considered to be a faster, cheaper, and more secure option.

You can use dedicated Form 1099 generators (like the one we have at Paystub.org) and file these documents using the Information Returns Intake System (IRIS), which is an official platform developed by the IRS. This lets you send forms quickly and efficiently in just a few clicks.

The IRS also has an e-filing mandatory threshold, where you must file multiple Forms 1099 electronically if you have 10 or more to send.

However, if you really want to file by paper, keep in mind that you must use the official red-ink forms. The IRS uses special scanning equipment that only works with specific ink, so you must either order Forms 1099 from the IRS or purchase them from an authorized seller.

Ultimately, electronic filing reduces the risk of input errors or having your forms lost in the mail. It should be your go-to option if you want to ensure compliance and avoid potential penalties.

7 Common Mistakes When Sending 1099s

Even meticulous and experienced business owners can make mistakes when sending 1099s. Familiarizing yourself with the most common ones will help you avoid them, so let’s see what they are:

• Sending Form 1099 to the wrong recipient. Some business owners send Form 1099 regardless of the recipient, so they end up issuing them for product purchases or to corporations, which creates unnecessary administrative work.
  
  
• Adding incorrect taxpayer information. A simple typo in the name, address, or Taxpayer Identification Number (TIN) can render the form inaccurate and trigger a mismatch notice. This may result in backup withholding or penalties unless you rectify the issue.
  
  
• Not collecting Form W-9. If you don’t collect Form W-9 from an individual or entity to whom you’ll have to issue Form 1099, the risk of filling out the form inaccurately and reporting vendor payment incorrectly increases.
  
  
• Reporting credit card payments. As we’ve already established, payments issued via third-party processors (including credit cards and PayPal) shouldn’t be reported via Form 1099. Since third-party processors issue Form 1099-K, sending another form yourself will result in double reporting.
  
  
• Missing deadlines. All 1099 forms have strict filing deadlines, and late filing will incur fines. The penalties increase the more time you need to file them, ranging from $60 to $340 per form. This figure increases to $680 or more if the IRS determines that you’ve wilfully disregarded the rules.
  
  
• Using the wrong independent contractor tax form (1099-MISC vs. 1099-NEC). Using the wrong form may result in misreporting income categories. This can lead to confusion and discrepancies in IRS records, requiring corrections down the road.
  
  
• Not keeping records. You should keep all records associated with Form 1099 even after filing it. This allows you to quickly respond to potential IRS audits or inquiries regarding errors.

Effortlessly Issue Compliant Forms 1099 with Paystub.org

At Paystub.org, we developed an easy-to-use Form 1099 generator that allows you to create these forms in minutes. The tool comes with a convenient template and a built-in calculator, so you can ensure accuracy and compute taxes with ease.

If you want to improve recordkeeping for your business, you can also try software generators, such as those for:

• Pay stubs
• W-2 Forms
• Invoices

Final Thought

A simple answer to the “Who do I send 1099 to?” question is to contractors, vendors, and professional service providers who aren’t incorporated and to whom you’ve paid at least $600 in a year.

However, it’s important to understand the nuances (e.g., not sending the form when paying via PayPal, or sending it to legal entities, even if they are corporations) to ensure accurate and timely filing.

Remember that there are severe financial penalties for being late, while incorrect filing can trigger increased scrutiny or audits. Using dedicated document generators (like the one at Paystub.org) and filing forms electronically can help you maximize efficiency and minimize the chances of making a mistake.

Who Do I Send 1099 To FAQs

#1. Who will need to file a 1099?

Any individual or business entity that paid a nonemployee at least $600 in a tax year for business purposes needs to file a 1099. This includes freelancers and contractors, as well as sole proprietors, LLCs, and large corporations that issued qualifying payments.

#2. What happens if I don't send a 1099?

If you don’t send a 1099, you will likely incur penalties from the IRS based on how late you are and how many forms you didn’t file. If you intentionally don’t send Forms 1099, the penalties will be much higher ($680 per form).

#3. Can I file late and avoid penalties?

In general, you can’t file late and avoid penalties, but the sooner you file after a missed deadline, the lower the fine will be. If you have legitimate reasons for filing late, you may attempt to file for a 30-day extension in advance by submitting Form 8809.

#4. Do I need to send 1099s for services paid through PayPal or credit card?

No, you do not need to send 1099s for services paid through PayPal or credit card. These payments are typically reported by the third-party payment processor using Form 1099-K, so you don’t need to issue another Form 1099-NEC.

#5. Can an individual issue a 1099 to another individual?

Yes, an individual can issue a 1099 to another individual if the payment was made for the purposes of trade or business. Personal payments generally do not require individuals to issue Forms 1099.