1099 compliance is one of the most commonly misunderstood areas of small business tax obligations — and one of the most penalized. The rules are not complicated, but they require attention to detail and a clear understanding of who qualifies, what threshold applies, and what the deadlines actually are.
The Basic Rule: Who Gets a 1099-NEC
You must file a Form 1099-NEC for any individual or unincorporated entity to whom you paid $600 or more during the tax year for services rendered in the course of your business. This includes:
- Independent contractors, freelancers, and consultants
- Attorneys — regardless of their entity structure, law firms receive 1099s
- Sole proprietors and single-member LLCs operating under their own name or a DBA
- Partnerships and LLCs taxed as partnerships
Who Does NOT Get a 1099-NEC
- Corporations (C-Corps and S-Corps) — with the exception of attorneys and medical/healthcare providers
- Employees — they receive W-2s, not 1099s
- Payments made via credit card or third-party payment processors — these are reported by the processor on Form 1099-K
- Payments for goods, merchandise, or inventory — 1099-NEC covers services only
The 1099-MISC: What It Still Covers
Since the IRS reinstated Form 1099-NEC for nonemployee compensation in 2020, the 1099-MISC covers a narrower set of payment types: rent paid to a landlord ($600+), royalties ($10+), prizes and awards, medical and health care payments, and payments to attorneys for legal settlements — distinct from fees for legal services, which go on the 1099-NEC.
The Deadlines
| Form | Recipient Copy Due | IRS Filing Due (Paper) | IRS Filing Due (Electronic) |
|---|---|---|---|
| 1099-NEC | January 31 | January 31 | January 31 |
| 1099-MISC | January 31 | February 28 | March 31 |
Note: If January 31 falls on a weekend or holiday, the deadline moves to the next business day. Electronic filing is required if you're filing 10 or more information returns.
The Penalties for Non-Compliance
The IRS takes 1099 compliance seriously. Penalties are assessed per form and increase based on how late the filing is:
- Filed within 30 days of deadline: $60 per form
- Filed after 30 days but before August 1: $120 per form
- Filed after August 1 or not filed at all: $310 per form
- Intentional disregard: $630 per form, with no cap
For a business that should have filed 50 1099s and didn't, the penalty for intentional disregard can reach $31,500. The administrative cost of filing correctly is a fraction of that.
The W-9: Your First Line of Defense
Collect a completed Form W-9 from every vendor before you make a payment — not at year-end when you're scrambling to assemble information for 1099 filing. A W-9 provides the vendor's legal name, entity type, address, and taxpayer identification number. Without it, you may be required to withhold 24% of payments as backup withholding. Make W-9 collection a standard part of your vendor onboarding process.