If you own a small business, there’s a good chance you need to issue one or more 1099s. Properly filing Form 1099 is essential for complying with IRS rules and avoiding penalties. But many small business owners aren’t aware of their filing requirements.

This article provides an overview of what business owners should know about issuing 1099 forms, from the due date to which types of payments require them, so that you can manage your filing requirements accurately and efficiently.

What is Form 1099?

Form 1099 is not a single form but a series of information returns used to report certain types of payments made by a business. Usually, when business owners talk about filing Form 1099, they refer to the form used to report payments made to independent contractors.

Before 2020, Form 1099-MISC was used to report miscellaneous income. Today, businesses use Form 1099-NEC to report nonemployee compensation. However, Form 1099-MISC is still used to report other types of payments, such as rents, royalties, medical and health care payments, crop insurance proceeds, gross proceeds paid to an attorney, and more.

Why the change? Before 2020, businesses had to navigate different deadlines for filing Form 1099-MISC, depending on the type of payment they were reporting. To simplify the issue, the IRS reintroduced the 1099-NEC—a form that hadn’t been used since the 1980s—which gave reporting of independent contractor payments the same due date as Form W-2.

Some other common variations of Form 1099 include:

• Form 1099-B for reporting sales of stocks, bonds, and other securities
• Form 1099-DIV to report income from dividends
• Form 1099-G for reporting unemployment compensation and state and local tax refund payments
• Form 1099-INT for reporting interest income
• Form 1099-S to report proceeds from real estate transactions

The remainder of this article focuses on reporting those payments using Form 1099-NEC, which is a fairly simple form. It essentially provides the recipient and payee identifying information and Social Security number or tax ID number, the amount of payments being reported, and whether any federal or state income tax was withheld from those payments.

When should a business file Form 1099-NEC?

Businesses need to issue Form 1099-NEC to report any payments totaling at least $600 made to independent contractors or nonemployees for services during the calendar year.

If you made these payments, you must send Form 1099-NEC to the payee by January 31 and send a copy to the IRS by February 28 for a paper form or March 31 if you file electronically.

It’s a good idea to have anyone you pay (other than employees or corporations) fill out a Form W-9. This form is used to gather information about the payee’s name, business name (if applicable), address, and tax ID number so you have all the information you need to complete Form 1099-NEC correctly.

While you’re not required to get a W-9 before issuing payments, getting this information beforehand ensures you won’t be rushing to gather the information you need leading up to the 1099 filing deadline.

You don’t have to submit the W-9 to the Internal Revenue Service or include it with your federal income tax return. Instead, you just keep it with your records.

What are the Form 1099 penalties?

The penalties for failing to file Form 1099-NEC can be significant, so it’s essential to ensure all forms are filed correctly and on time.

The IRS charges penalties for each information return you file incorrectly or late and for each payee statement you don’t send. The penalty also varies depending on how late you file and whether it was an oversight or intentional disregard of your filing requirements.

For payments made in 2023, the fees in 2024 are:

• $60 per form up to 30 days late
• $120 per form 31 days late through August 1
• $310 per form filed after August 1 or not filed
• $630 per form for intentional disregard

As you can see, if you’re required to file several forms, those penalties can add up quickly.

How to file Form 1099-NEC

You have several options for filing Form 1099-NEC.

• Paper filing. You can fill out the forms by hand and mail them to recipients. If you prefer this route, visit https://www.irs.gov/orderforms and click on Online Ordering for Information Returns and Employer Returns. The IRS will send you the official forms and instructions. Note that you can’t simply print out the PDF versions of the forms available on the IRS website, as they’re not scannable, and the IRS won’t accept them.
• Electronically file with the Information Return Intake System (IRIS). For the 2022 tax year and later, you can electronically file any Form 1099 directly with the IRS via the IRIS system. First, apply for a Transmitter Control Code (TCC) online.
• File with your accounting software. Many small business accounting software platforms, such as QuickBooks and Xero, offer electronic filing of 1099 forms for customers.
• Work with a professional. If you outsource your accounting and tax work to a professional like NewWay Accounting, we can take the headache of preparing 1099 forms off your hands.

No matter how you file, keep copies of all the forms you send in case the IRS questions your compliance. By keeping detailed records and filing Form 1099-NEC on time, you can avoid costly penalties.

Ultimately, knowing the 1099 form filing requirements is a must for any business. It helps ensure you comply with IRS regulations and avoids potentially steep penalties. But the reality is that it can seem like a daunting task. That’s why it’s essential to find a knowledgeable and experienced partner you can count on, like our team here at NewWay Accounting. We can take the process off your plate so you can focus on running your business. Please reach out if you have any questions. We’re always happy to help clients navigate accounting and tax questions and provide business advice.