1099s Made Simple: Who Gets One, Who Doesn’t, and How to Avoid IRS Headaches
Be sure to read to the end for a special trivia question!
It’s better to roll your eyes at a terrible Tax Dad Joke than to cry over a non-filing penalty.
Every January, business owners across the country are reminded that with great power (1099 income) comes great responsibility (issuing 1099s to others).
If you pay contractors for services, the IRS expects you to report those payments — and they’ve built several traps that catch people who don’t understand the rules.
This post covers everything you need to know:
Who needs a 1099, who doesn't, which form to use, how payment processors change the rules, and the deadlines and penalties that apply if you miss something.
Let’s get into it.
1. Who Needs a 1099 — and Who Doesn’t
The IRS doesn’t want a 1099 for everyone you pay. Only certain types of payees require reporting.
Who needs a 1099-NEC
If you pay $600 or more for services, you generally must issue a 1099-NEC to:
Independent contractors
Locum tenens physicians
Medical scribes, billers, and coders (if not employees)
Virtual assistants
Bookkeepers
Freelancers (website editing, marketing, design, etc.)
Anyone you pay as a non-employee for professional services
Who does not need a 1099
Corporations (S-Corps and C-Corps), except attorneys and certain healthcare entities reporting under 1099-MISC
Employees (they get a W-2 instead)
Payments for personal, non-business services
Payments made entirely through certain payment processors (covered below)
Special note for TaxSmart MD clients
If you pay for TaxSmart MD services, you do not need to issue a 1099.
All TaxSmart MD payments are processed through Stripe, which treats these as third-party network transactions reported (if required) on a 1099-K.
Because of this, clients are not responsible for issuing a 1099-NEC or 1099-MISC to TaxSmart MD.
2. The $600 Threshold
The classic rule still holds:
If you pay $600 or more in a calendar year for services, you must issue a 1099-NEC.
It’s based on total annual payments, not per-invoice amounts.
If you paid:
$300 in March, and
$400 in October
That totals $700 → A 1099-NEC is required.
3. Payment Processors (Venmo, PayPal, Stripe, Square) — and How the One Big Beautiful Bill Affects This
If you pay someone through any of these:
PayPal (Goods & Services)
Venmo Business
Stripe
Square
CashApp for Business
…then you do not issue a 1099-NEC.
These are considered third-party payment network transactions. Under IRS rules:
The payment processor is responsible for issuing Form 1099-K,
Not you.
Current 1099-K threshold
The One Big Beautiful Bill (OBBBA) delayed the planned drop to $600.
We are still under the older, higher standard:
$20,000 AND 200 transactions
This is why most physicians and small service businesses will not receive a 1099-K from their payment processors — but those payments are still taxable to the recipient.
Practical implication
If you want fewer 1099s to issue, paying contractors through a third-party app can simplify year-end reporting.
But for the contractor, this may come with transaction fees, so weigh the trade-offs.
4. 1099-NEC vs. 1099-MISC — What’s the Difference?
The IRS separated these two forms several years ago. They serve different purposes.
Use 1099-NEC for:
Professional service payments
Consulting fees
Locum tenens work
Physician independent contractor income
Freelance administrative or technical services
Use 1099-MISC for:
Rent
Royalties
Attorney payments
Medical and healthcare payments made to entities
Prizes and awards
Certain insurance payments
A simple rule of thumb:
If you’re paying for services, use 1099-NEC.
If it’s anything other than services, it likely belongs on 1099-MISC.
5. How to Get the Information You Need: Collect a W-9 Upfront
Before paying any contractor, always request a Form W-9.
It provides:
Legal name
Business entity type
EIN or SSN
Address
Whether they are a corporation and therefore exempt from 1099 reporting
This form should be collected before work begins — not in January when you’re scrambling.
6. Deadlines and Penalties
1099-NEC
Provide to the contractor: January 31
File with the IRS: January 31 (paper or electronic)
1099-MISC
Provide to recipient: January 31
File with IRS: February 28 (paper) or March 31 (electronic)
Penalties for late filing
The IRS penalty is assessed per form, depending on how late you are:
$60 if filed within 30 days
$120 if filed by August 1
$310 if filed after August 1
$630+ for intentional disregard
If you work with multiple contractors, these add up quickly.
7. How to File 1099s
Electronic filing (recommended)
Options include:
IRS IRIS system (free)
Track1099
Tax1099
TaxBandits
Your accountant/bookkeeper
Electronic filing reduces errors and provides immediate confirmation.
Paper filing
If you choose paper:
You must order “red ink” forms from the IRS
Include Form 1096 as the transmittal
Mail to the IRS by the applicable deadline
Paper filing is slower and nearly obsolete for most small businesses.
8. Where You Must Attest on Your Tax Return That All Required 1099s Were Filed
Every business tax return requires you to certify whether:
You made payments requiring 1099s, and
You filed all required forms.
This attestation appears in multiple places:
Form 1120-S (S-Corporations)
Schedule B, Page 2 — questions confirming whether 1099s were required and filed.
Form 1065 (Partnerships)
Schedule B includes the same questions.
Schedule C (sole proprietors)
Direct questions on Lines I and J.
Schedule E (rental property, if it is a “trade or business”)
If you paid contractors directly, you must attest here too.
These questions are under “penalty of perjury,” so accuracy matters.
The TaxSmart Takeaway
If you pay anyone for services outside of payroll, there’s a good chance you owe them a 1099 — unless the payment went through a processor like Stripe (as with TaxSmart MD). The key to staying compliant is simple: collect a W-9 upfront, track payments throughout the year, know the difference between NEC and MISC, file electronically by the January deadline, and answer the 1099 attestation honestly on your tax return. A little setup now saves a lot of headache later.
Because this is so essential to proper tax compliance, and the penalties are steep, I offer this service to my business clients. If you do not feel comfortable handling this on your own, make sure that you have a professional who can assist you with taking care of this obligation.
Special Trivia Question!
This blog post mentions earlier two exceptions where you need to file a 1099-MISC to a corporation (attorney fees, and medical/health care payments). What is a third exception?
A. Payments to a clown for working for your kid's birthday party
B. Fish purchases for cash
C. Payments for illegal activities, such as the purchase of illegal drugs
D. Purchases at garage sales and flea markets.
Click here to learn the answer!