A 1099 is a series of forms used by the IRS to track various types of income that are not reported on a W-2 or other forms. 1099s are sent to both the recipient AND the IRS. 

The most common 1099 forms relevant to small businesses are:

• Form 1099-NEC (Nonemployee Compensation): Used to report payments of $600 or more in a calendar year to nonemployees (e.g., independent contractors, freelance workers, and other service providers).  
• Form 1099-MISC (Miscellaneous Information): Historically used for nonemployee compensation, it now primarily covers rent, prizes, awards, and certain other payments not reported on Form 1099-NEC.
• Form 1099-K (Payment Card and Third Party Network Transactions): Issued by third-party payment processors (e.g., PayPal, Stripe) to report certain payment transactions. Pay special attention to this if you use anything like Stripe, Paypal or other processors in your business.
  
  

Each 1099 variant has specific purposes and thresholds, so it’s important to determine which form applies to each payment type you’ve issued.

Generally, you should issue a 1099-NEC for each person (or unincorporated business) to whom you’ve paid $600 or more over the course of the tax year for BUSINESS services.  Personal services are excluded from this.

Key points:

1. Individuals & Sole Proprietors – If you hired a contractor or freelance worker (not on payroll) and paid them at least $600 in total during the year, you likely need to issue Form 1099-NEC.
2. Partnerships & LLCs – Payments to partnerships and LLCs typically require 1099-NEC forms if they exceed $600 for services, unless the LLC is treated as a C or S corporation (in which case 1099 reporting is generally not required for service payments).
3. Incorporated Vendors – Payments made to C or S corporations usually do not require a 1099-NEC, with a few exceptions (e.g., attorney fees).  So if you pay a marketing vendor that is an S Corp...you do NOT need to send a 1099. 
   
   

Anomaly Tip: You should request a completed and signed Form W-9 from each vendor or contractor before you make payments. The W-9 will provide the legal name, tax classification, and Taxpayer Identification Number (TIN) needed for the 1099.

Although deadlines could change slightly from year to year, they are usually as follows:

• January 31:
  • 1099-NEC copies must be furnished to recipients and filed with the IRS by this date.  You cannot miss this deadline if you are a business owner!
  • 1099-MISC copies must be furnished to recipients by this date (if you're reporting amounts in Box 7, it would be Form 1099-NEC instead).
• March 31:
  • E-filing deadline for Form 1099-MISC and other 1099 forms (not including 1099-NEC).
• February 28:
  • Paper filing deadline for Form 1099-MISC and other 1099 forms (not including 1099-NEC).
    
    

NOTE: If you are unable to find the vendors information OR the vendors refuses to provide information, there are two steps:

• Let them know you will report to the IRS anyways
• Consider stopping business with this vendor.  Vendors who refuse to provide tax ID information generally are engaged in deceptive business practices based on our years of experience dealing with this situation.

1. Collect W-9 Forms: Before making ANY payments, request a signed W-9 from each vendor or contractor.
2. Identify Reportable Payments: At year-end, run a report to see total payments made to each nonemployee or vendor. This should be fairly easey in QBO.
   1. Double-check any business type exemptions (e.g., corporations, certain LLCs).
3. Prepare and File 1099s: Reach out to us if you need assistance here.  Our Concierge Accounting Clients have a certain threshold included in their engagements. 

If you fail to file 1099s or file them late, the IRS may assess penalties that increase with time. The potential penalties per form can range from $50 (if you file within 30 days of the deadline) up to $290 (if you fail to file by August 1 or do not file at all), depending on how late you file. Intentional disregard of the filing requirement may result in even steeper fines. 

1099s are not fun but they are a necessary part of being a business owner!  At Anomaly we are here to assist with the process if you need our help.  Remember, if a vendor refuses to provide 1099 information, this should be considered a red flag!