1099 Basics for Small Business: Understanding IRS Requirements

What is Form 1099?

Form 1099 is considered an information return by the Internal Revenue Service. These returns must be filed annually, and the deadline for the 2025 tax year is January 31, 2026.

There are more than 20 different types of 1099s, but most small businesses only need to know two:

• Form 1099-NEC – reports payments to independent contractors or freelancers.

• Form 1099-MISC – reports miscellaneous payments such as rent, attorney fees, or prizes.

These forms can seem overwhelming and confusing. The information guide provided below covers 1099 basics for small businesses and addresses some frequently asked questions regarding the requirements.

When Do Small Businesses Need to File a 1099?

When you hire an employee, you complete forms such as the W-4 and I-9. But when you pay non-employees — such as independent contractors, consultants, or service providers — you may also need to file a 1099.

There are still federal reporting requirements for these payments. Just as a business owner completes the necessary documents to hire an employee, they should also ensure they request a Form W-9 from any individual or business that requires payment for services. While a few business types may not require filing, requesting a W-9 from any service vendor is best practice. It is also vital to request completion of this form before issuing payment to ensure the vendor will complete it. This form provides their legal name, address, tax classification, and taxpayer identification number — information you’ll need to complete the 1099 later.

Here’s the general rule:

Here are a few examples of vendors who should receive a 1099:

• Any vendor who has provided professional services (accountants, engineers, architects, and attorneys)

• Non-employees earning commissions

• Independent contractors and freelancers providing services, goods, or travel

• Landlords receiving rent payments

Here are a few examples of payments that do not require a 1099:

• The purchase of goods & other tangible assets does not generally require a Form 1099, though if goods are part of the service provided, they are to be included in the sum of payments

• Generally, payments made to corporations or LLCs that are taxed as corporations (S-Corp or C-Corp).

• Transactions reported via a 1099-K (for example, through Venmo or PayPal), depending on the type of profile and expenses reported for business purposes.

• Personal expenses not related to your business.

Frequently Asked Questions About 1099s

Am I required to file a 1099?

US tax law requires you to file a Form 1099 for any non-employee you paid more than $600 in the tax year and who meets the IRS guidelines. Your federal income tax return requires the taxpayer to certify if they were required to file and if those forms were filed as anticipated.

What is the difference between a Form 1099-NEC and 1099-MISC?

Form 1099-NEC is an abbreviation for Non-Employee Compensation. It is the most common form utilized to report payments to independent contractors. Form 1099-MISC reports various other expenses, such as rent, attorney payments, and other income.

Why should I request a W-9 before issuing payments?

The W-9 collects specific information from the vendor, such as name, address, tax classification, and taxpayer identification number. It also includes a critical signature that certifies the vendor is providing accurate information. If a contractor refuses to provide a W-9, you may be required to apply backup withholding, meaning you must withhold and remit a portion of their payment (24% for 2025) to the IRS.

What if a vendor refuses to complete a W-9?

You’re still responsible for collecting the correct information. If you can’t obtain a valid W-9, you risk penalties for filing incomplete or inaccurate 1099s.

What if a check payment to a vendor is not cashed until next year?

The sum reported on the 1099 is on a cash basis, which means that once the amount has been posted to the bank account, it will be recorded in the current tax year.

Do I need to file a 1099 for international contractors?

You will not be required to file a 1099 for international business payments. However, your business should complete a W8-BEN form instead.

Simplify Your 1099 Filing with Third Mesa

Keeping up with 1099 rules and deadlines can be stressful — but it doesn’t have to be. At Third Mesa, we help small business owners stay compliant and confident with:

• Accurate bookkeeping and contractor tracking

• Year-end reporting and 1099 preparation

• Simple, stress-free filing guidance

Need help preparing your 2025 1099s? Connect with our team to get expert support.