Every January, small business owners trying to follow 1099 rules for small business owners run into the same confusion.

• Who needs a 1099?
• Which form do I send?
• What’s the deadline?
• What happens if I missed something?

1099s are one of those tax requirements that feel simple until they suddenly aren’t. And when they’re done wrong, the penalties add up quickly.

This guide breaks down exactly how 1099s work, who needs one, who doesn’t, the real deadlines, and how to avoid common mistakes that cause unnecessary stress every year.

 

 

What Is a 1099 and Why the IRS Requires It

A 1099 is how your business reports payments made to others.

The IRS uses 1099s to match income. If your business reports paying someone, the IRS expects that income to appear on the recipient’s tax return. That matching system is how the IRS identifies underreported income.

Understanding 1099 rules for small business owners is essential because reporting errors usually lead to penalties, not audits.

If you pay independent contractors or certain vendors, 1099 reporting is not optional. It is a compliance requirement.

1099-NEC vs 1099-MISC. Which One Do You Use?

Most small business owners only deal with two types of 1099 forms.

1099-NEC is used for payments made to independent contractors.
1099-MISC is most commonly used for rent payments.

Using the wrong form is a common mistake, especially for newer businesses. Contractors belong on a 1099-NEC. Rent belongs on a 1099-MISC.

1099 Rules for Small Business Owners: Who Needs a 1099 and Who Does Not

In general, a 1099 is required if you paid a contractor $600 or more during the year.

This is a cumulative rule. The IRS looks at total payments made between January 1 and December 31, not individual invoices. Multiple smaller payments can easily cross the threshold without anyone noticing.

That said, not every payment requires a 1099.

You typically do not need to issue a 1099 if:

• The vendor is an S corporation or C corporation

• Payments were made by credit card, debit card, or PayPal

• The contractor is outside the US and performed services abroad

• The worker is a W-2 employee

• The payment was personal and not business related

Understanding these exceptions alone can significantly reduce unnecessary filing.

1099 Deadlines You Need to Know

1099 reporting covers the calendar year, January 1 through December 31.

Forms must be:

• Sent to recipients

• Filed with the IRS

The standard deadline is January 31. If that date falls on a weekend, the deadline moves to the next business day.

Missing the deadline triggers penalties, even if the mistake was unintentional.

What Happens If You Miss a 1099

1099 penalties are assessed per form and increase the longer the issue goes unresolved.

• $60 per form if filed within 30 days after the deadline

• $130 per form if filed more than 30 days late but before August 1

• $340 per form if filed after August 1 or not filed at all

• $680 per form if the IRS determines intentional disregard

These penalties stack quickly. One missed form is frustrating. Multiple missed forms can become expensive fast.

This is why 1099s aren’t just paperwork. They’re a compliance issue with real financial consequences.

The Most Common 1099 Mistakes

Most 1099 problems come down to process, not lack of knowledge.

The most common mistakes include:

• Not collecting W-9s before paying contractors

• Letting bookkeeping fall behind

• Waiting until January to review contractor payments

• Guessing instead of tracking totals

When January arrives, these issues surface all at once.

What To Do Instead

The fix for 1099 issues is simple, but it requires consistency.

Track total payments by contractor throughout the year.
Collect W-9s before you pay anyone.
Keep bookkeeping clean and up to date.
Use filing tools that streamline the process.

When these systems are in place, 1099 season becomes routine instead of reactive.

Big Beautiful Bill Update. What Changed

Starting in 2026, the 1099 filing threshold increases from $600 to $2,000 and will adjust for inflation going forward.

This change reduces administrative burden for business owners. However, it does not eliminate the need for clean systems. Tracking payments and collecting W-9s will still matter.

You can read about that in this IRS overview of the One Big Beautiful Bill Act provisions.

Good systems make compliance easy regardless of the threshold.

Final Takeaway

1099s do not have to create stress.

Most problems come from waiting too long, tracking the wrong things, or assuming someone else is handling it.

Clear 1099 rules for small business owners turn January from a scramble into a routine process. And predictable is exactly what you want when it comes to taxes.

If you want help building proactive tax systems that prevent issues before they show up, our team works with small business owners every day to do exactly that.

Transcript

[00:00:00] Introduction to 1099 Forms

[00:00:00] Mike J: Are you confused about 10 90 nines? You’re not alone. Every January, business owners scramble trying to remember who do they send forms to, what are the deadlines and whether they’re even doing it right, but get this wrong. And the IRS penalties, they’re not pretty in today’s topic, I’m cutting through the chaos and giving you the simple truth about 10 99 NECs and 10 99 miscellaneous, and what matters for 2025 and how to stay compliant before the deadline creeps up.

[00:00:24] So let’s make this your easiest January. Ever. 

[00:00:46] Mike J: Alright, so let’s dig into it and let’s talk about, first off, like what are 10 90 nines in general, and basically a 10 99 is used to report to the government the payments that you made to others in your business. So other payments that you’ve [00:01:00] made to other people, other businesses, other different people, individuals.

[00:01:03] The 10 99 is used to report those payments to the government, and the government then uses that information to say, okay, we’re showing that Company X paid company Y and they paid them Z dollars, and they wanna match up to say that, okay, if Y was paid Z dollars, is that showing on their tax returns? So it’s a way for the government to have some checks and balances and information about what kind of payments were made across.

[00:01:26] Company to company. 10 80 nines are required by law to submit it, assuming that you meet certain qualifications on why it’s required, but generally stating if you’re making payments to an independent contractor, a 10 89 would need to be sent. If you’re making payments for rent of a building that you’re renting, a 10 89 would need to be sent.

[00:01:44] Now, this is specifically for business owners and we’ll talk about who needs to get sent, what are some of the requirements, what are some of the exceptions? We’ll walk through that, but just know generally. That if you’re paying contractors, if you’re paying people, you need to send ’em a 10 99.

[00:01:56] Generally stating, by the end of January, after the year [00:02:00] has been completed. 

[00:02:00] Understanding 1099 NEC and 1099 Miscellaneous

[00:02:00] Mike J: Now there’s two forms that we’re gonna focus on today, and that’s the form 10 99 NEC. This is used for independent contractors, more specifically independent contractors, that you paid over $600 throughout the year or two.

[00:02:13] The second form. We’re gonna talk about is a 10 99 miscellaneous, and this is used for many different purposes, but for the most common that we see business owners use it for is when you’re making payments for rent. So those are the two forms we’re gonna talk about 10 99 and EC and 10 99 miscellaneous.

[00:02:30] Now let’s talk about some of the deadlines. 

[00:02:31] Filing Deadlines and Penalties

[00:02:34] Mike J: When do these need to be filed? Because the year ends. And when we do 10 99 reporting, we’re reporting January through December. And then those forms need to be filed by January 31st, so that’s only 30 days, 31 days after the year is over that you need to get all these forms organized, sent out, filed and over to the recipient.

[00:02:50] So there’s not much time, and we’re gonna talk about what does that look like Now, this year’s a little different because the 31st. In 2026 that lands on a weekend. So the [00:03:00] actual filing dates and when these need to be sent to the recipient by would be February 2nd, 2026, but generally stating most years, it’s January 31st, and that’s where both 10 99 NECs and 10 99 miscellaneous, they need to be to the recipient by February 2nd, 2026.

[00:03:16] Again, because it’s a weekend. January three. The first runs on a weekend, it would be February 2nd, which is that Monday afterwards. Now, if you do not file a 10 99, I think this is important to understand what are the penalties, what’s the consequences of not filing a 10 99? And generally stating if you miss the deadline, that’s gonna be penalties that can range from anywhere from as low as $60 per form to $340 per form, or even more, especially if you are disregarding the intentional disregard of not filing.

[00:03:43] So if you file a ten nine, ten ninety nine. 30 days late, it’s gonna be $60 penalty per form. If you file a form, 31 days late or before August 1st, it’s gonna be $130 penalty per form. And if it’s after August 1st, or you didn’t file a 10 99 [00:04:00] at all, and you have to after the fact, it’s gonna be a penalty of $340 per.

[00:04:05] And if there’s what they would call intentional disregard, like you intentionally did not send a 10 99, that’s gonna be of a penalty of $680 per form. Now these penalties are per performed, so these could really add up. So let’s say that you missed 10, 10 90 nines you were supposed to send out, you missed them, and after 45 days, you realized that you sent ’em in late 45 days late.

[00:04:24] That’s gonna be 10 forms times the penalty of $130. That’s $1,300. In penalties. Now, imagine if you had a hundred forms or 200 forms that you missed, or maybe you didn’t file it after 45 days, but you didn’t file it at all, but you had to after the fact. Those penalties can add up, and so that’s why it’s so important to just do this now.

[00:04:43] It’s a tedious process. There’s not much value in it. It’s a pain, but it doesn’t take much time, especially if you’re doing it correctly, and especially if you’re on top of things, which we’ll talk about some tips for that. 

[00:04:53] Who Needs to Receive a 1099?

[00:04:53] Mike J: But let’s talk about who do you need to send these 10 90 nines to, because.

[00:04:56] Okay, we have to send nine, nine nines. Who, why? What, who are [00:05:00] we sending them to? And there’s two main reasons. One, if you paid a contractor over $600, if you paid ’em, $600 via cash, via check, via bank transfer, you would’ve to send them a 10 99. That’s $600 is an cumulative total. So let’s say you made a payment of two 50 today.

[00:05:17] You made a two payment of 2 52 months ago, and you made another payment of 2 53 months ago that total, each payment was under 600. But each, the total cumulative value of it was over 600. So a 10 99 would need to be reported to them. A lot of people confuse that. They say I’m just gonna make payments at $580.

[00:05:34] Every payment’s gonna be 580, stay under $600. They don’t gotta worry about filing it. Not true. It’s between January and December if you paid somebody. An individual or a business $600 or more if you paid them via cash check, bank transfer, direct deposit, whatever it might be. If you paid ’em over $600, you have to file them.

[00:05:53] I had to file a 10 99 for them. 

[00:05:55] Exceptions to 1099 Filing

[00:06:03] Mike J: Now, there’s some exceptions to that and so as with anything in the tax law, there’s some exceptions. Let’s go through those exceptions ’cause this will help understand you. If there’s something you can just automatically close out, so if you made payments to a corporation, this would be an S corporation or a C corporation, not necessarily an LLC, but an S corporation or a C corporation.

[00:06:15] You don’t need to send a 10 99 to them. Now, if you paid an attorney for legal services, you still would, even if they were organized as an SRC corporation. But generally stating most business owners, most contractors, if they’re operating as an S Corp or a C corp, no 10 99 is required to them. If you had non-US citizens that were bringing more outta country, so let’s say you worked with a designer in India or something like that, you wouldn’t need to send 10 90 nines to them if you made payments via credit card.

[00:06:41] Or debit cards or through what they call a third party settlement organization. Think of a company like PayPal. So if you made payments to somebody via credit card, debit cards, or PayPal. You don’t need to send ten nine, send a 10 99 to them. And so that’s very important. It hopefully is reducing the amount that we’re sending 10 90 nines to, and a lot of people say, why?

[00:06:59] Why? If I pay [00:07:00] them cash or via check, do I need to send 10 99? But if I pay them via credit card, I don’t. And the main reason being is that the credit card processor that company uses, if you pay for somebody who a credit card, they use a credit card processor. And that credit card processor is gonna send them a 10 99 K for all the payments and all the items that were charged via that credit card.

[00:07:22] So if you send them a 10 99 NEC and then you paid via a credit card, the payment processor’s gonna send them a 10 99 K. Now they’re gonna have 2 10 90 nines for the same amount. And so that’s why I say you don’t have to send it. If you pay via a credit card or an debit card, you don’t need to send a 10 99 to them.

[00:07:38] So those are the big things. Who is required payments that you made over $600. That’s a general statement. If you paid someone over $600, you have to sell ’em a 10 99 unless they meet a requirement an exception, which is they’re organized as an S corporation or a C corporation. They’re a non-US citizen and performed services outside of the contrary.

[00:07:56] Or you paid them via credit card or debit card because they’re gonna receive a [00:08:00] 10 99 k from that anyways. Now the final one. I just wanna mention is that if you have employees, so actual employees, W2 employees, obviously we’re not 10 99. Those 10 90 nines are for contractors, employees are gonna receive a W2 through your payroll providers.

[00:08:14] That’s gonna be a completely separate form. We’re not sent 10 99, 10 99 them. One final note is that if you paid for personal services, let’s, so let’s say you have a business. But then on the side, your new home, you hire an electrician to do some work, or you put a new deck on your house or something like that.

[00:08:28] If it’s for a personal service, not related to your business. No, 10 99 required for that. So you wouldn’t have to, if you’re not a business owner, you don’t even have to worry about sending 10 90 nines out. Another thing is that if you paid rent, you’re gonna issue a 10 99 miscellaneous, a 10 99 MISC. So that’s gonna be the form you use.

[00:08:45] All independent contractors gonna be 10 99 NECs. Rent’s gonna be reported on form 10 99 MIC. 

[00:08:52] Steps to File 1099 Forms

[00:08:52] Mike J: The next thing I wanna talk about is how we’re gonna do it. How do we actually file these forms, and what important things do you have to have Ready? Now, just a quick break. If you are a business owner and tired of second guessing your tax moves, we’ve got something for you.

[00:09:05] It’s our brand new tax saving starter kit, and it’s totally free. You’ll get our top business deductions cheat sheet. You’ll get real life case studies where business owners have saved $5,000 or $25,000 or more, and you’ll even get a bonus discovery call with our team. Just head on over to tax savings podcast.com/starter kit to grab it.

[00:09:24] Again, that’s tax savings podcast.com/starter kit. To grab that free tax savings kit. Alright, so now let’s get back to it. How do I do it? There’s four main steps in this. The first step is you need to collect a W nine from all contractors that you pay. Now this should have already been done, but if it’s not done yet, you need to now go to all your contractors and say, I need a W nine from you.

[00:09:47] I need a W nine from you. That W nine. It’s gonna give you their name, it’s gonna give you their address, it’s gonna give you how they are taxed, so whether they’re an LC, a sole proprietor, a C Corp, an S corp, it’s gonna be around that [00:10:00] W nine. It’s gonna have their EIN number or social security number, and then they’re gonna sign it.

[00:10:04] This is super powerful because that W nine. Has all the information on it that you need to be able to set, prepare, and send them a 10 99. But there’s also some other key things there. Let’s say they are an S corporation. Let’s say they are a C corporation. You might not know that, but when they fill out that 10 99, they’re gonna indicate it.

[00:10:22] So if they indicate on that W nine that they filled out, you’re gonna see, oh, on the W nine, they indicated they’re an S corporation. I don’t need to send them a 10 99 anymore. So we always wanna be collecting on W nine from everybody we pay, and we want that W nine before we actually pay them.

[00:10:36] Because sometimes if you haven’t collected W nines, you might find out here in January, as we get into January, you might be having a hard time getting ahold of some of your contractors and getting the 10 99 a W nine from them after the fact. So step one is always collect a W nine from contractors.

[00:10:52] Collect it from ’em before you pay them. But if you can’t, at least now you have to go back and try to grab all that. ’cause that’s the information on that W nine is the [00:11:00] information you’re gonna need to be able to sell ’em at 10 99. Step two is to prepare. Prepare them a 10 99 if it’s required. So you’re gonna start preparing that 10 99.

[00:11:09] Gather the information. How much did you pay the contractor? Start filling out that form. Then you’re gonna send step three is sending a copy of that 10 99 to the contractor by the due date, January 31st. Normally this year it’s gonna be February 2nd. Step four is filing that copy with the IRS instate if it’s required.

[00:11:24] That’s easy. It’s not that hard. As long as you have the W nine. As long as you have a clean bookkeeping file that gives you exactly how much you paid all these contractors, it can be a very quick process. Now, I highly recommend utilizing a software that can e-file this and make this process so much easier.

[00:11:38] They can even email and mail out these 10 90 nines for you. We love a service called Tax Bandits, so in the show notes, we’ll have a link. If you’re interested in checking out tax bandits that can help make this process super easy for you. But definitely recommend utilizing a software to speed this up.

[00:11:51] The other cool thing too is if you’re paying similar contractors year after year, they’re already saved into the system. So you don’t necessarily have to recreate that 10 99 and enter [00:12:00] all that information every time once you have started working with the software that you really like and enjoy.

[00:12:05] So let’s go through some common mistakes. 

[00:12:07] Common Mistakes and How to Avoid Them

[00:12:15] Mike J: What are some of the biggest things that we see when people make mistakes of when it comes to 10 90 nines? And the biggest one is not collecting W nines ahead of time. They don’t collect the W nines and then it gets to January, they can’t get ahold of their contractors or they’re slow.

[00:12:20] Next thing the deadline’s up. They don’t have W nines, so they can’t even send a 10 99 ’cause they don’t have the W nine information. And now they’re potentially facing penalties in late filings. So that is the biggest thing we always say. Whenever you’re gonna pay someone, put it as part of your process.

[00:12:35] When you’re collecting payment information, when you are getting people that send you invoices, ask for a W nine upfront and save it on file. Because then when tax season comes, when January rolls around, you already have that information. The second mistake that we see people make is not filing on time, and usually this isn’t because they’re not trying to, it’s usually because their bookkeeping’s not ready.

[00:12:55] They never touch their bookkeeping throughout the year or it’s not accurate. It’s not up to date. And so [00:13:00] how are they supposed to know how much to send to 10 99 if you have a bookkeeping file that is garbage or is not up to date or not accurate. How much, what are you gonna put on a 10 99? Because on that 10 99, you have to indicate how much did you pay that person.

[00:13:13] And so if you have a bookkeeping file that’s all backdated, there’s no way to know exactly how much you paid that specific contractor. So make sure now, take your time at the beginning of the year, at the end of the year, at the beginning of the year. Take some time to get your bookkeeping caught up so that you can easily grab the information, figure out who all needs to be paid, how much did you pay?

[00:13:33] Everyone in total figure out who qualifies. If there’s any exceptions, take ’em out and then just start processing those 10 90 nines. So again, a quick checklist that we’ve talked people through. Collect W nines, complete bookkeeping and have total payments that you paid to each individual vendor. Have that total for the year, January 1st through December 31st.

[00:13:50] Have that total, and then use software to issue those forms and file those electronically. This can be a very easy process, but it is, it takes some time. It’s a little [00:14:00] annoying. It’s something that is not super fun to do, but it’s required by the law to remember and the penalties can add up, and we don’t want that to happen.

[00:14:08] So get on top of it, start making those adjustments. Start sending out those 10 90 nines. Get it over with, January’s gonna go really quick. Get it over with at the beginning of the year. Get those 10 90 nines out so you don’t have to worry about that. Now, one last thing before I go.

[00:14:22] Upcoming Changes for 2026

[00:14:22] Mike J: I wanna talk about changes for next year because the one big beautiful bill act change some things when it comes to 10 at night. And honestly, I think this is a good thing. The changes that they made are a good thing. For business owners. So this is all for next year. For this year, what you have to file here in the next month, disregard everything we talk about.

[00:14:39] But think about this as you’re setting up your bookkeeping file in 2026, what that’s gonna look like. So changes next year, tax year 2026, that you’re eventually gonna be filing those 20 nines and 2027. Two major changes, 10 99 NECs and 10 99 miscellaneous Have a new filing threshold. Instead of that threshold being $600, you paid [00:15:00] someone $600 or more, you have to send a 10 99.

[00:15:02] That’s getting bumped. That gets bumped up to $2,000 and it’s gonna adjust every year for inflation. So this is a great thing. That means if you paid someone $1,500 this year, you have to send ’em about 10 99. Next year you wouldn’t. So that filing threshold next year in 2027, we’re gonna be filing 22 in 20 January of 2027 for the tax year, 2026, that filing threshold has been buck up to $2,000.

[00:15:26] So that’s great news for business owners and should hope, ease some of the administrative burden from sending out these 10 90 nines. 

[00:15:33] Conclusion and Resources

[00:15:33] Mike J: So with that being said, January doesn’t have to be tax season chaos. Get ahead of it now. You’re gonna save time, you’re gonna save stress, and you’re possibly gonna save thousands dollars in penalties and interest.

[00:15:43] So if you found this helpful, don’t forget to hit subscribe. Hit that like button and share it with a business owner who’s sick of paying too much in tax. And if you want help from our team of tax professionals with 10 90 nines along with so many other tax strategies, visit us at Tax Elm. That’s TAX.

[00:15:59] [00:16:00] elm.com or click the LinkedIn description for a free discovery call. We are helping small business owners like you legally lower your tax bill every single day. Thanks for listening, and I’ll see you on the next one.

[00:16:11] Mike J 3: Thanks for tuning in to the Small Business Tax Savings Podcast. We hope today’s episode sparked some brilliant ideas to help you save on taxes and grow your wealth. If you loved what you heard, hit the subscribe button and share the wealth with fellow entrepreneurs. For a treasure trove of tax saving resources, visit tax Savings podcast.com.

[00:16:34] There you’ll find tools, guides, and all the info you need on reducing your taxes. Let’s elevate your business to new heights together. Remember the insight shared here for educational purposes and not specific tax or legal advice. Always consult with a qualified professional for your unique situation.

[00:16:52] Until next time, keep thriving and saving.