Confused about when to issue Form 1099? For 2025, IRS compliance is more important than ever. This actionable guide from Virtue CPAs explains exactly when and how to file, what’s new this year, and what happens if you don’t.
What Is Form 1099 and Who Needs to Issue It?
Form 1099 is an informational tax document the IRS uses to track various non-employee payments. If you made payments in the course of business—especially to non-employees, independent contractors, or vendors—you may need to file a 1099.
You MUST issue a 1099 if:
- You operate a trade or business (sole proprietor, LLC, partnership, corporation, nonprofit, or landlord).
- You pay for services—not just goods—to an individual or unincorporated entity.
You DO NOT issue a 1099 for:
- Personal (non-business) services, like babysitting or home repairs done privately.
What Are the Most Common Types of 1099s?
Multiple versions of Form 1099 exist. Here are the main forms every business should know:
| Form | Use Case |
|---|---|
| 1099-NEC | Non-employee compensation—freelancers, contractors, gig workers |
| 1099-MISC | Rent, prizes, legal settlements, medical payments, other income |
| 1099-K | Payment card/third-party network payments (PayPal, Stripe, etc) |
| 1099-DIV/INT | Dividends / Interest payments |
| 1099-S | Real estate transactions |
- Most small businesses use 1099-NEC and 1099-MISC.
- 1099-K is handled by payment processors for card/third-party payments.
When are You Required to Issue a 1099 in 2025?
- If you paid $600 or more in total during 2025 for services (not goods) to any non-employee or unincorporated entity, you must issue a 1099.
- 1099-NEC: For non-employee compensation (e.g., contractors, freelancers, agencies). Threshold: $600+
- 1099-MISC: For rents, prizes, legal settlements, or medical/health payments. Threshold: $600+; Royalties: $10+
- Payments are cumulative—add up all payments to each payee during the year.
What’s New in 2025?
- Recent legislation, like the "One Big Beautiful Bill Act," has proposed adjustments, but the $600 threshold stands unless IRS issues updated guidelines for 2025.
- E-filing is now mandatory if you issue 10 or more 1099s in a year.
When Should You NOT Issue a 1099? (Key Exceptions!)
- Employees: Use Form W-2, not a 1099.
- Corporations: No 1099 needed for C Corps/S Corps (except for legal, medical, and attorney payments).
- Credit/debit card or PayPal payments: Not your responsibility. These are reported on 1099-K by the processor.
- Foreign contractors working overseas: Usually not required—use Form W-8BEN.
- Personal payments: Not a business expense? No 1099 needed.
- Goods or inventory purchases: Only for services.
Quick Decision Checklist:
- Was the payment $600+ and for a business service?
- Did the vendor provide a W-9 and valid TIN?
- Was it a non-corporate recipient?
- Was the payment via non-card methods?
If you answer yes to all above, you likely need to issue a 1099.
How to Prepare and Issue 1099 Forms (Step-by-Step)
1. Collect Payee Information Early
Use Form W-9 to request:
- Legal name
- Business name (if any)
- Address
- Taxpayer Identification Number (TIN)
- Entity type (individual, LLC, corporation)
2. Track All Payments
How to Prepare and Issue 1099 Forms (Step-by-Step)
3. Complete Form 1099
Use accounting software, IRS e-file portal.
4. File On Time
- 1099-NEC: Provide to recipients & IRS by January 31, 2026
- 1099-MISC: Recipients by January 31, 2026; IRS by February 28, 2026 (paper) or March 31, 2026 (e-file)
5. Paper Filing Only
If issuing paper forms, accompany 1099s with IRS Form 1096 (summary).
What Are the Penalties for NOT Filing 1099s?
Late, missed, or incorrect filing can be costly:
- $60–$330 per form, depending on how late you file.
- $660 or more per form if you intentionally disregard IRS rules.
- Risk IRS audit, fines, and required "backup withholding" (24% of future payments to the recipient).
Avoid penalties: Keep immaculate records and use professional guidance.
Special 1099 Rules for States
Some states, including California and New York, have their own 1099 deadlines and/or require direct submission. Always check your state’s department of revenue site for the latest guidance.
1099 Comparison Table: When to Issue (and When Not To)
Multiple versions of Form 1099 exist. Here are the main forms every business should know:
| Payment Scenario | Issue 1099? | Form Type | Notes |
|---|---|---|---|
| $600+ to contractor via check | Yes | 1099-NEC | For services, not goods |
| $700 rent to LLP | Yes | 1099-MISC | Rent to non-corporation |
| $1,200 to C-corp vendor | No | N/A | Exception: Medical/legal |
| $10,500 to overseas freelancer | No | N/A | Outside U.S. = no 1099 |
| $350 to graphic designer | No | N/A | Under $600 threshold |
| $950 via PayPal | No* | N/A | 1099-K issued by PayPal |
*You may need to issue a 1099 if payment method is not via card/third-party.
Conclusion: Stay Compliant, Stay Stress-Free
Issuing 1099s can feel daunting, but compliance is non-negotiable for U.S. businesses in 2025. Virtue CPAs specializes in Business Tax, Monthly Accounting Services, and CFO/Controller Services to ease your load and help you focus on what matters.
Ready for zero-stress tax reporting? Book a consultation with Virtue CPAs today.
