1099s: Who Needs Them, Requirements & NEC vs. MISC
Are you scrambling to gather the forms and information you need for tax season? Have you left it to the last minute? Are you getting out the W-2 information for payroll?
Do you need 1099s? Do you know what that is and how to get it?
Well, how soon does a business owner need to gather these documents? If you are aware, there are many 1099 forms, but here we will cover what they are, who needs them, and what information is required.
What are 1099-MISCs?
A 1099-MISC is used to report certain types of payments made to individuals or businesses who are not employees. For example, non-work expenses, and in many cases, it’s used for rent paid. So, if you are paying your landlord rent, you will need to make sure you have that document.
Another example would be for an employee who paid for things on the side; they fall in this category. This form tells the IRS (and the person/business receiving it) how much income they were paid outside of a traditional job (where a W-2 would be used). Not many situations require a 1099 MISC form due to recent law changes, but it is crucial to issue it in a timely manner.
So, What is a 1099-NEC?
Since 2020, the IRS has split most non-employee compensation, such as freelance or contract work, for reporting on a 1099-NEC form, while other miscellaneous payments are reported on a 1099-MISC form. The 1099 NEC form is the one you will mainly issue, as you report what you paid your accountant or contractors who did work for you, rather than an employee.
On this form, you will report payments of $600 or more made to independent contractors, freelancers, gig workers, or anyone providing services who is not an employee. Just to be clear, if you paid a mechanic to replace vehicle parts, that does not fall under the requirements for filling out this form. However, if your business is not classified as an S-Corp or a C-Corp, you will not have to provide these forms, and vice versa.
Another note to keep in mind is that advertising/marketing companies that did work for you and received more than $600 from you for the year can fall into a gray area. We generally look for smaller marketing/advertising businesses, especially those only located in your area. For example, Mailchimp, Facebook, Google Ads, and others like them would not be considered small businesses. We recommend that you speak with your tax advisor to get a clear view of this.
However, if your business is not classified as an S-Corp or a C-Corp, you will not have to provide these forms, and vice versa. A helpful guideline to remember for this form is that it applies when your company pays more than $600 for a service, not for a product.
When do I need to start these forms? What other information should I know?
Generally, it’s beneficial if you start before January 31st. This is why we advise you to have up-to-date, prepared books throughout the year. If your books/accounts are reconciled every month, issuing 1099s is much smoother. If you, as a business owner, fail to submit the correct 1099, the IRS imposes penalties.
There is a set monthly cost per 1099 not issued or incorrect, with no expiration date. As a case in point, if you wait 2 years to file just one 1099 form, you can face 24 months in penalties or more. There’s a responsibility for the recipient as well; even if you don’t get a 1099, the IRS still requires you to report the income.
If you don’t, and the IRS has a record (because the payer filed one), you can also face penalties. Perhaps you need assistance filling out a 1099 form. QBO has provided a thorough demonstration on how to file a 1099 form in 2025.
What is a W-9, and why do I need it?
You must ensure you have a W-9 for all contractors and service providers to make the process easier. The W-9 form provides their legal name, EIN or Social Security number, mailing address, how they file their taxes, and their signature confirming the information provided is correct. If they indicated on the W-9 that they are an S-Corp or a C-Corp, it means you are not required to send them a 1099, and you’re not held liable.
Therefore, make sure to have it in writing or traceable that you have attempted to retrieve a W-9 multiple times. This is in case you must file a 1099 without an EIN, and you can indicate why it’s missing. To better help you understand the importance of having your contractors, freelance workers, etc., 1099 or W-9, and how it also benefits you to send yours out, read more on our previous blog Why You Should Ensure that You Have W9s on File Before Paying a Contractor.
To Summarize: Stay Prepared for Tax Season
In other words, ensure you are covered for tax season in advance. Even if that means being covered in 1099s or W-9s to prepare for tax season. To help you differentiate between 1099-Misc and 1099-NEC, think of Miscellaneous Money like rent, prizes, or legal fees – not for actual work. For NEC, think of Non-employee Compensation like people who do work for you but aren’t your employees, such as contractors.
As for W-9, remember that, as “Write your info”, this is when you give your information to someone before they pay you; it helps them, or you, prepare a 1099 later. Here is a small and easy mnemonic rhyme to remember these by: Minne Never Waits, and below is a chart for you to keep. Check out our YouTube page for more tips and information you might find helpful as a business owner. At Waterford Business, we strive to help you become a smart, prepared, successful, and profitable business owner.
