Why 1099s Cause Confusion Every January

Every January, business owners start asking the same questions.
Do I need to send a 1099? Who actually needs one? What happens if I mess this up?

1099 requirements feel confusing because the rules are specific, the deadlines are firm, and the penalties can add up quickly. Add in contractors, reimbursements, and payment platforms, and it is easy to see why mistakes happen.

The good news is this does not have to be overwhelming. Once you understand who needs a 1099 and why, the process becomes much more manageable.

What a 1099 Is and Who It Applies To

A 1099 is an IRS form used to report certain types of payments made to non-employees. Most commonly, businesses issue Form 1099-NEC to report payments made to independent contractors.

In general, you are required to issue a 1099 if:

• You paid an individual or business $600 or more during the year
• The work was related to your business
• The worker is not your employee
• Payment was made by cash, check, or bank transfer

1099 requirements help the IRS track income that is not reported through payroll. If you work with contractors, understanding who needs a 1099 is essential.

Contractors vs Employees, Explained Simply

One of the most common areas of confusion is the difference between a contractor and an employee.

Employees:

• Are paid through payroll
• Have taxes withheld
• Receive a W-2, not a 1099

Independent contractors:

• Are self-employed
• Invoice for their work
• Are responsible for their own taxes
• Receive a 1099-NEC when applicable

Misclassifying workers is a serious issue. Treating an employee like a contractor can trigger penalties, back taxes, and IRS scrutiny. If you are unsure how someone should be classified, it is worth reviewing this before issuing forms.

Common 1099 Mistakes That Trigger IRS Notices

Many IRS notices related to 1099s come from a few repeat mistakes.

• Issuing a 1099 to the wrong type of vendor
  Corporations generally do not receive 1099s, with some exceptions.
• Forgetting to collect W-9 forms
  Without a W-9, you may not have the correct legal name or tax ID.
• Missing payments made outside of accounting software
  Payments made manually or outside your system are often overlooked.
• Including payments that should be excluded
  Credit card and third-party processor payments are usually reported by the processor, not you.
• Missing the filing deadline
  Late or incorrect filings increase the chance of penalties.

Avoiding these 1099 mistakes starts with good recordkeeping and a clear process.

Key 1099 Deadlines and Penalties to Know

The most important deadline for most businesses is January 31.

By this date, you must:

• Provide 1099 forms to contractors
• File 1099s with the IRS

Penalties vary based on how late the filing is and whether the mistake was intentional. Even small errors can add up quickly when multiple forms are involved.

Starting early and reviewing your vendor list before January can prevent last-minute stress and costly corrections.

Get Help With Your 1099s

If you are unsure who needs a 1099, worried about mistakes, or already received an IRS notice, help is available.

Issuing or correcting 1099s does not have to be stressful when your records are accurate and reviewed properly.

Need help issuing or correcting your 1099s?
Schedule support now and get peace of mind knowing your forms are handled correctly and on time. Click here to schedule a consultation https://aem-accounting.com/contact