1099 Forms Explained: When to Issue, What Happens If You Don't

What Is a 1099?

A 1099 is an information return used to report non-wage payments made to others to the IRS. The most common type is the 1099-NEC (Nonemployee Compensation).

In plain terms: if you hired a contractor, subcontractor, or freelancer and paid them, you may need to issue them a 1099.

When Must You Issue One?

You must issue a 1099-NEC when all these conditions are met:

1. The recipient is an individual or non-corporate entity (sole proprietor, LLC, partnership) — payments to C-Corps and S-Corps are generally exempt (with exceptions)
2. You paid the same person/entity $600 or more in a tax year
3. The payment was for business-related services, not merchandise

What Do You Need to Prepare?

• Have the payee complete a W-9 form before paying them — this provides their name, address, and TIN/SSN/EIN
• Keep the W-9 on file — you don't send it to the IRS, but you'll need it in case of audit
• Track total annual payments to each person/entity

Key Deadlines

• Copy to recipient: By January 31
• File with IRS: By January 31 (for 1099-NEC, both deadlines are the same)

What If You Don't File?

• Penalties: The IRS imposes per-form penalties for missing or late 1099s, escalating based on how late you file
• Deduction risk: If you paid someone but didn't issue a 1099, the IRS may question the deductibility of that expense
• Recipient complaints: Payees need the 1099 to file their own taxes

FAQ

Q: Do I still need to issue one if I paid by credit card or PayPal?

A: Usually not. Credit card and third-party payment processors (PayPal, Venmo for business) issue their own 1099-K to the recipient. You only need to issue a 1099-NEC for payments made via cash, check, bank transfer, or Zelle.

Q: Do I need to issue a 1099 for attorney fees?

A: Yes. Attorney fees are an exception — even if the law firm is a corporation (including S-Corp), you must issue a 1099 if you paid $600 or more.

Q: I'm an SMLLC and received a 1099 — what do I do?

A: Report the amount shown on the 1099 as income on your Schedule C. Reconcile it with your own records.

Practical Tips

1. Collect a W-9 before the first payment to any new contractor
2. Track payments by person and month in a spreadsheet — year-end totals will be effortless
3. Start preparing in mid-January — don't wait until the 31st
4. Not sure whether to issue one? It's better to over-report than under-report — issuing an unnecessary 1099 won't trigger penalties, but failing to issue one will

This article is general tax education and does not constitute personalized tax advice. Please consult a qualified tax professional for your specific situation.