1099 Filing Requirements for Small Businesses: Who Gets a 1099 and When
Every business that pays $600 or more to an unincorporated service provider (an independent contractor, freelancer, or sole proprietor) during a calendar year must issue a 1099-NEC form. This is a filing obligation on the payer (the business), not the payee (the contractor). The business files the 1099-NEC with the IRS and provides a copy to the contractor by January 31 of the following year. Failure to file carries penalties that increase with the delay.
A 1099-NEC is required when ALL of the following are true: (1) The payment is $600 or more during the calendar year. (2) The payment is for services (not products). (3) The payee isn’t a corporation (C-Corp or S-Corp). Payments to LLCs that have elected corporate taxation are exempt. Payments to single-member LLCs and partnerships require a 1099. (4) The payee isn’t a W-2 employee. The deadline is January 31 (both the recipient copy and the IRS copy). There’s no automatic extension for 1099-NEC. The penalties for late or non-filing: $60/form if filed within 30 days of the deadline, $130/form if filed by August 1, $330/form if filed after August 1, and $660/form for intentional disregard. For a business that pays 10 contractors and fails to file any 1099-NEC: the penalty is $600 (within 30 days), $1,300 (by August 1), $3,300 (after August 1), or $6,600 (intentional disregard).
How do you know if a contractor needs a 1099?
The process starts with Form W-9. When the business hires a contractor, the business should collect a completed W-9 (Request for Taxpayer Identification Number and Certification) before the first payment. The W-9 provides the contractor’s name, address, TIN (Social Security Number or EIN), and entity type. The entity type determines whether a 1099 is required:
- Individual / sole proprietor / single-member LLC: 1099 required if payments exceed $600.
- Partnership / multi-member LLC: 1099 required if payments exceed $600.
- C corporation: 1099 NOT required (with exceptions for medical/health payments and attorney fees).
- S corporation: 1099 NOT required (same exceptions).
If the contractor refuses to provide a W-9, the business must withhold 24% of payments (backup withholding) and report the payments on 1099-NEC.
What payments require a 1099?
Services that require 1099-NEC:
- Freelance design, writing, development
- Subcontractor labor (construction, cleaning, landscaping crews)
- Professional services (attorney fees, accounting fees, consulting)
- Commission payments to non-employee salespeople
- Day-of coordinators, second shooters, contract workers
Payments that don’t require 1099-NEC:
- Payments to corporations (C-Corp or S-Corp)
- Payments for merchandise or products (inventory, supplies)
- Payments for rent to a real estate agent or property manager (these go on 1099-MISC)
- Payments made via credit card, PayPal, Venmo, or other third-party payment processors (the processor issues the 1099-K)
- Wages to W-2 employees (reported on W-2)
The credit card / payment processor exception is important: if the business pays a contractor via credit card, PayPal, or Venmo (goods and services), the business doesn’t issue a 1099-NEC for that contractor. The payment processor issues a 1099-K instead. However, if the business pays the same contractor via check, ACH, or cash, the business MUST issue a 1099-NEC.
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Yarik Yarosh, CPA. "1099 Filing Requirements for Small Businesses: Who Gets a 1099 and When." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-1099-filing-requirements
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.