When and How to File a Form 1099

“Wait, I need to file what now?” If you ever said this in January while staring at your business expenses, you are on the right page. 

Being a small business owner, or someone who’s hiring freelancers or independent contractors, you might not know how to avoid the heavy penalties for estimated taxes. This is where Form 1099 acts as a crucial document that ensures you stay on the right side of the law. 

If you miss this filing, you will hand over your money to the government in the form of penalties instead of reinvesting it in your business. 

That's why it's crucial for all businesses, both small and large, to understand when and how to file Form 1099 correctly, the types of this form, and all exceptions to consider. This article will walk you through the entire process step-by-step. 

Let’s get started!

What is Form 1099?

Form 1099 is basically the Internal Revenue Service’s (IRS) way of tracking money that changes hands outside of traditional employment.

This informational tax document is used to report specific incomes that aren’t a part of the traditional employer-employee relationship. Instead of wages or salaries (which are reported on a W-2 Form), Form 1099 covers non-employment income such as payments to freelancers or independent contractors, interest from bank accounts, dividends, rental income, and more. 

There are over 20 types of 1099 forms, each for a specific kind of income. Businesses must send these forms to both the recipient and the IRS if they paid for non-employee work or other reportable payments during the year.  

Why is filing Form 1099 important?

For businesses, filing 1099 is a legal requirement with strict deadlines. Failing to accurately report qualifying payments can result in penalties.

But it's not just about avoiding penalties - proper 1099 filing is also essential for:

• Ensuring self-employed individuals accurately report their full income
• Allowing taxpayers to claim eligible deductions and credits
• Enabling the IRS to verify income sources and amounts

For recipients, Form 1099 provides an official record of the miscellaneous income they received over the previous year. This makes it easier to clearly report the income in their tax returns and pay the total taxes owed.

The key takeaway? Don't take Form 1099 lightly - both businesses and individuals need to treat it as a core component of their tax compliance strategy.

Also read: Ultimate Guide for Ecommerce Tax Filing in 2025

Types of Form 1099

Form 1099 isn't just for reporting payments to individuals. Depending on the type of income or transaction, there are different variations of the form, such as 1099-INT for interest income or 1099-DIV for dividends.

Thus, when it comes to filing taxes, understanding the different types of Form 1099 is crucial for businesses and independent contractors alike. Let’s look at all the form types along with their utilities:

When to file a Form 1099

The last date of providing Form 1099 to the recipients is January 31st. Simultaneously, you need to file it with the IRS by the specific deadline, depending on the method you choose. For paper filing, the deadline is February 28th, whereas for electronic filing (e-filing), it is March 31st.

Here’s a simplified breakdown of payments made during the financial year for which you need to file this Form 1099:

• Payments to Nonemployees or Independent Contractors: File Form 1099-NEC if you paid $600 or more in a year to any nonemployee, such as a freelancer, or independent contractor, for their services
• Rents: File Form 1099-MISC if you paid $600 or more for office space, land or equipment rentals
• Royalty payments: File Form 1099-MISC if you paid $10 or more in royalties (including payments to authors or inventors)
• Certain medical or health care payments: File Form 1099-MISC if you paid $600 or more to doctors, clinics, or other providers for medical or health care services, even if the provider is incorporated
• Attorney payments: File Form 1099-MISC if gross proceeds paid to attorneys (such as settlement payments) sum up to $600 or more
• Sales of consumer goods: File Form 1099-NEC if you sold products of $5,000 or more to a buyer for resale (not through a permanent retail establishment)
• Backup withholding: File a 1099 form if you withheld federal income tax (often because the payee didn’t provide a correct W-9 form), even if the payment is less than $600
• Third-party payment networks: File Form 1099-K if you received payments through platforms like PayPal or Venmo. The threshold for filing Form 1099-K is $5,000 for 2024. However, it has dropped to $2,500 in 2025

The role of W-9 forms

Before you can file a 1099 form, you'll need to have the recipient's correct personal details, including name, address, and tax identification number (TIN). This is where the W-9 form comes into play.

So, always ask for the complete W-9 form from each vendor or contractor before paying them for the first time. This way, you'll have their information on file and be ready to issue 1099s at the end of the year.

But what if a recipient doesn't provide a W-9? In that case, you may be required to withhold a certain percentage (often 24%) of their payments for backup withholding purposes.

What are the exceptions to filing Form 1099? 

While the general rule is to file a 1099 for payments of $600 or more in a calendar year, there are some exceptions to consider:

• Payments to corporations (except for legal services and certain medical/healthcare payments) are generally exempt from 1099 reporting
• Payments for merchandise, telegrams, telephone, freight, storage, and similar items are not reportable on Form 1099
• Payments made with credit/debit cards or through third-party platforms like PayPal and Stripe are reported by those companies on Form 1099-K, so you don’t need to file a 1099-MISC for payments
• Payments made through services like Zelle, Wise, Payoneer, or Bill.com typically require you to file Form 1099-MISC
• Certain employee benefit payments, such as health insurance premiums or reimbursements for medical expenses, may require different reporting 1099 forms

Note: If you pay a vendor using the “family and friends” option on PayPal, Venmo, or similar apps, you’ll still need to issue a 1099-MISC. That’s because these payments are treated as personal transfers by the platforms, so they aren’t reported to the IRS on your behalf. For business payments, always use the correct “goods and services” option to ensure proper tax reporting.

How to file a Form 1099: Step-by-step process

Understanding when and how to file Form 1099 is crucial for staying compliant with IRS regulations and avoiding tax penalties. Here is a step-by-step guide to ensure you handle 1099 filing like a pro:

Step 1- Identify the correct 1099 Form

Choose the form that matches the type of payments you made (e.g., 1099-NEC for nonemployee compensation, 1099-MISC for miscellaneous income, 1099-INT for interest, etc.) and start preparing information accordingly. 

Step 2- Gather payer (yours) and recipient information

Collect both the payer’s (yours) and recipient's name, address, phone number and taxpayer identification number (TIN), using the W-9 Form. You also might need the payers’ account number (only applicable when you’re filing multiple 1099 forms) for tracking. Preparing all this information beforehand will ensure seamless and accurate 1099 filing. 

Step 3- Obtain the forms

Unfortunately, you cannot just print these forms off the internet. You can only get the official 1099 forms from the official sources, such as:

• IRS website: Purchase any 1099 form you require directly from IRS website or by contacting them by phone at 1-800-829-3676
• Office supply store: Buy packets of 1099 forms from your nearest office supply store or order them from the store’s website online 

Step 4- Complete the 1099 form for each contractor

Now, you know which 1099 to fill, you’ve gathered all the information and obtained the current year’s form, the next step is to fill out the form. For this, you’ll have to provide the following information: 

• Payers (yours) Social Security Number (SSN) or Employee Identification Number (EIN) 
• The independent contractor’s name and SSN/EIN 
• The total amount that the independent contractor was paid 
• Details on the amounts you paid each recipient in the last tax year. For example- enter the total amount paid in the relevant boxes (e.g., Box 1 for rent on 1099-MISC, Box 1 for nonemployee compensation on 1099-NEC). Only include eligible payments as defined by the IRS for each box
• Details on any pay that was withheld and how much

How to file a Form 1099 accurately 

For every contractor you’ve worked with during the year, you need to fill out two copies of the 1099 form.

• Copy A goes to the IRS, letting them know exactly what you paid out
• Copy B is for your contractor, so they have all the details they need for their own tax return and report their yearly income accurately

Remember, Copy B should be sent on or before January 31st to the contractor. If you miss this deadline, the IRS can penalize you with fines. 

Step 4- Submit your 1099 forms

Got your 1099s ready? You've got two options to get them to the IRS:

❌ Snail Mail (old school): Send Copy A with Form 1096 (which acts like a cover sheet). It might look easy, but it's slower

☑️ Online: Use the IRS FIRE (Filing a Return Electronically) system, which requires:

• Getting a Transmitter Control Code (Form 4419) at least 30 days before deadline
• Setting up your FIRE account
• Organize and automate your financial data across all channels to ensure accurate 1099 filing through a compatible software
• Submit the document (in the proper format) via the FIRE system.

Note: For the 2024 tax year (filing in 2025), if you have to submit over 10 information items in a single year, you need to e-file your taxes.

Also read: 5 Best Sales Tax Software for Ecommerce Businesses in 2025

Why should you always file a 1099 Form electronically?

E-filing offers a host of advantages over traditional paper filing methods. Not only is it quick, convenient and eco-friendly, but you'll also enjoy extended deadlines compared to paper filing. 

You’ll also enjoy a greater level of security, which is especially important when sending financial information, as there is no risk of your Form 1099 getting lost or stolen on its way to the IRS. 

Many e-filing platforms provide helpful tools like recipient information management, error checking, and streamlined state filing. Just be sure to choose an IRS-approved service provider to ensure compliance.

Wrapping up!

Tax compliance isn't why you started your ecommerce business. As you’re more interested in growing your business, you would always want to avoid IRS penalties and maintain compliance with tax regulations. This is why we have discussed everything you needed to know about 1099 forms; an unavoidable part of success.

Hopefully, you can save time now as the process gets much easier when you know what’s required. 

If reading this has got you worried about all the hours you'll spend tracking payments, and double-checking everything to submit a Form 1099, there’s a better way. Automation tools like Webgility can seamlessly integrate with QuickBooks, automatically tracking payments to your contractors and vendors throughout the year. 

Sales tax compliance 

Plus, its sales tax management features ensure you stay compliant as it handles the nitty-gritty of sales tax calculations, reporting, and reconciliation.

Try Webgility if you want to simplify your tax filing and discover how easy 1099 compliance can be.