This topic was previously covered in one of my weekly newsletters. To get other timely tips, make sure you’re on the list: www.thejilljames.com/newsletter
Each time I write about W-2 and 1099s in my newsletter, I get a ton of follow-up questions about 1099s. Since they must be submitted to the IRS by January 31 each year, below is some help.
Who needs a 1099?
Who needs a 1099? 1099-NECs are primarily for service providers organized as sole proprietors, partnerships, or LLCs that choose to be taxed as individuals.
In your business, that might include your accountant, bookkeeper, lawyer, photographer, or event planner, and of course your independent contractors.
If you’ve paid a service provider more than $600 from your bank account or via a cash transfer app, you’ll need to evaluate whether they need a 1099-NEC.
Does it matter how I paid?
In short, yes. Did you pay from your bank account? This might include payment by check, ACH / Zelle / wire transfer, or debit card. If their payment shows up on your bank statement, it counts.
2024 1099-NECS are not required:
- If you paid by credit card
- If you paid by PayPal, Venmo, or similar over $5,000 (the platform will send a 1099-K directly)
- If the company is a C-corp, S-corp, or LLC taxed as one of these – check their W-9
How to Determine if You Need to Issue a 1099
If you’ve just realized you owe some 1099s, you have almost two weeks to get this done. If you missed the deadline, do it as soon after as you can.
What to check: Look in your bank or financial statements for anyone you paid $600 or more in 2024.
What to collect: If you didn’t get an W-9 from your service provider, ask them to send one now, along with a preferred email address for delivery. If their W-9 says sole proprietor, partnership, or limited partnership, you’ll need to issue a 1099-NEC. If it says limited liability company (LLC), check the next line for how they’re taxed. If it says any of the things in the second sentence of this chunk, then you’ll need a 1099-NEC.
What to record: Review your bank statements or bookkeeping software to summarize what you actually paid to each service provider.
Filing and sending: Most bookkeepers and payroll software packages provide this service. If you have a bookkeeper, many will file supplemental 1099s for a limited fee. Another service that’s been recommended to us is Track1099 by Avalara, costing $3 or less per filing, if you feel comfortable with DIY. Your mailed or emailed 1099s must go out by February 15.
Best Practices for filing 1099 Forms
I pay most of my contractors through Gusto because the system automatically files my hiring reports and rolls the payments into electronic 1099s each January. Even if you don’t have a W-2 payroll, you can now use Gusto for standalone contractor payments. Should you decide to go for it, please consider using our Gusto referral link.
Another best practice: If your business needs a 1099-NEC, fill out a W-9, date it 1/1/25, and scan it. Send it with your first invoice to any new customer. If you’re paying your service partners directly, ask for W-9s as you go. Here’s the blank W-9 to get you started.
