Are you sticking to lean growth, using fractional teams and contractors? While you might not be running payroll, you still have some annual tax reporting responsibility for your contracted team members, freelancers, and service providers.
If you’re new to the world of hiring, this article will walk you through the basics of 1099s — what they are, who needs them, and when you need to file them.
First, who actually needs a 1099?
For those who need a refresher, 1099s are tax summaries that inform the IRS that you paid for business services. There are a few different kinds of 1099s, which we get into below. But most basically, you’ll need to keep track of payments to contracted service providers.
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In your business, that might include your accountant, bookkeeper, lawyer, photographer, or event planner, and of course your independent contractors.
Types of 1099s (+ definitions)
While you may receive many kinds of 1099s, the types used most by businesses are:
What is a 1099-NEC?
These go to your business service providers like independent contractors, freelancers, and self-employed folks. NEC stands for non-employee compensation. For 2025, you’ll need to evaluate your 1099-NEC responsibility for anyone you paid at least $600.
Most states follow the federal threshold, but double-check whether you have a different local requirement. If your state filing threshold is lower, you can file 1099-NECs for smaller amounts. (In 2026, the federal filing threshold will jump up to $2,000.) Some companies choose to provide 1099-NECs for any amount of payment, just in case.
What is a 1099-MISC?
This covers income for rents, prize winnings, fees paid to attorneys, and a catchall of other income categories.
What is a 1099-K?
This is a report of your business revenue collected via payment platforms like PayPal, Venmo, and CashApp, or marketplaces like Etsy and Amazon. While you don’t need to send these to people you paid using these platforms, you might receive one, and must include it on your tax return.
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For 2025, you will receive one or more 1099-Ks if you processed revenue of $20,000 and 200+ transactions through a payment platform or online marketplace. (This was supposed to be a much lower threshold, but it was reset in July by the OBBBA.)
While there are a few more types of 1099s (summarized here), unless you’re managing people’s money, these are the ones you’ll use.
How do I know who needs a 1099?
There are three steps to figuring out who needs a 1099-NEC:
- Did you pay them a total amount that meets or exceeds the minimum threshold of $600 (or local minimum) in the previous calendar year?
- Did you pay using cash, check, ACH, or Zelle directly from your business bank account?
- Is the contractor legally structured as a sole proprietor, partnership, or LLC that has chosen to be taxed as one of those?
The first two are pretty easy to figure out from your bank transaction logs or accounting software. But the last one is information you get by requesting a W-9 form, aka a “Request for Taxpayer Identification Number and Certification,” from your service providers.
The best practice throughout the year is to collect W-9s as you go, each time you start working with a new service provider that you’re paying directly. But if you didn’t do that, you can make those requests now.
If you weren’t sending out your own W-9s, fill out a copy of the IRS template, PDF it, and send it around as you sign new contracts.
Why does it matter how I paid a vendor?
Major payment platforms provide the IRS with bulk transaction reports. Credit card processors have long been required to file reports once transaction volume reaches $20,000. More recently, peer-to-peer cash transfer apps have been required to report business transactions, too.
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For 2025, PayPal, CashApp, and Venmo will provide the IRS with reports of accounts that had business payments of $20,000 and at least 200 transactions. (Those rules have changed every year, so check what’s required for 2026, and then make sure to check it again in November.)
While you’re considering whether it’s worth it to accept credit cards, keep in mind that it gives you permission to skip 1099 filings.
How do I record and file 1099s?
As of 2025, the IRS no longer accepts paper 1099 files. You’ll need to prepare and deliver an electronic file. The annual filing deadline is January 31, but when that date falls on a weekend, the deadline bumps out to 11:59 PM on the following Monday.
The filing deadline is also the date that you’ll need to deliver your 1099s to your service providers. This is where it gets tricky — they might need a paper copy.
If you are using a bill pay or payroll system like bill.com, Gusto, or Quickbooks, you may be able to push a button and have your 1099s distributed, electronically or by mail. If that’s not the case, you’ll need to mail out or email your reports.
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If you don’t have an electronic platform ready, or just have a few items to file, we recommend Avalara 1099 and Tax1099 as two easy-to-use, inexpensive filing options. You can complete your digital 1099s for as little as $3 per vendor.
What happens if I don’t file 1099s?
Do you claim tax deductions for qualified business expenses? Your expenses get matched up to your 1099 filings. If you don’t report your spending on services, your tax deductions could be cancelled.
In less dire but still disruptive news, your diligent partners will be chasing you daily for their reports so they can finish their own tax filings. By February 15, people get quite insistent.
If I don’t get a 1099, do I have to report the income?
Whether or not you receive a 1099, it’s your responsibility to report all the income you earned in a year.
