1099-NEC, 1099-K, and W-9: Information Return Basics for Small Businesses

Information returns are how the IRS learns about payments that are not wages. If you paid a freelancer, designer, bookkeeper, or subcontractor during the year, you may need to send them and the IRS a Form 1099-NEC. The process is easy if you collect information at the beginning and track payments during the year, and stressful if you wait until January.

The main forms

Form 1099-NEC (Nonemployee Compensation): reports payments to non-employees for services, generally $600 or more in a calendar year under long-standing rules. Legislation enacted in 2025 raised the reporting threshold for certain payments made after 2025, so verify the current threshold before filing.
Form 1099-MISC: reports other payments, such as rents, prizes, and certain other income.
Form 1099-K: reports payment card and third-party network transactions, and is issued by payment processors and marketplaces to sellers, not by the business to vendors. Reporting thresholds have changed several times, so check the current threshold if you receive one.
Form 1099-INT, DIV, B and others: issued by financial institutions and brokers.
Form W-9: a request for taxpayer identification number, which you collect from vendors, not file with the IRS.
Form W-8BEN and related: for foreign payees. See agency international contractors.

Who gets a 1099-NEC

Generally, you must issue a 1099-NEC when:

You made payments in the course of your trade or business.
The payments were for services (including parts and materials incidental to the services).
The payee is not your employee.
The payee is an individual, partnership, or generally an LLC (not a corporation, in most cases).
The total payments for the year meet the threshold.

Common exceptions: payments to corporations (with some exceptions, such as attorneys, for whom reporting generally applies even to corporations), payments made by credit card or through payment platforms (which are reported by the processor on 1099-K, not by you), payments for merchandise, and personal payments. LLCs taxed as corporations may be exempt, so the W-9 helps determine treatment.

Do not treat "she is a company" as an automatic exemption. Check the W-9 tax classification and rules. If you are unsure, ask a professional.

Collect W-9s up front

Before you pay a new vendor, ask for a completed Form W-9. It provides the name, tax classification, address, and taxpayer identification number you need for the 1099. Keep it in your vendor file. Without a TIN, you may be required to withhold a percentage of payments as backup withholding. Do not wait until January to ask, because vendors are hard to reach and may not respond.

Deadlines

The 1099-NEC is generally due to the recipient and the IRS by January 31 of the year after payment, with no automatic extension for the IRS copy, though a limited extension is available under specific circumstances. 1099-MISC has different deadlines depending on the box. State filing requirements may apply and vary. Many states participate in a combined federal and state filing program, while others require separate filings. File electronically if required (generally when you file a specified number of returns), and many small businesses use software or a provider.

Backup withholding

If a payee fails to provide a taxpayer identification number, or the IRS notifies you that the number is incorrect, you may have to withhold at a set percentage of payments and deposit it with the IRS. Reporting is on Form 945. This is a compliance burden that a W-9 up front avoids.

Penalties

Penalties apply per return for failing to file correct information returns, failing to furnish statements to recipients, and intentional disregard. Amounts increase the later you file and are tiered. Small businesses have lower annual caps. If you discover an error or missed filing, correct it promptly. The IRS can abate penalties for reasonable cause in some situations.

Building a year-round process

Vendor onboarding: collect W-9 (or W-8) before the first payment.
Bookkeeping: use a specific expense account or vendor flag for 1099-reportable payments. Tag vendors as 1099 eligible in your accounting software.
Payment method tracking: note whether payments were made by card or check, since card payments are excluded.
Quarterly check: review vendors approaching the threshold and confirm you have their W-9s.
December review: run a vendor payment report, compare it to W-9 files, and correct classification.
January: generate forms, review, send to vendors, and file by the deadline.
Keep copies of the forms and W-9s.

See month-end close checklist for regular reviews.

Interaction with worker classification

Issuing a 1099-NEC does not make someone a contractor. If the worker is actually an employee, the business owes payroll taxes and should issue a W-2. Filing a 1099-NEC for a person who works like an employee can highlight a misclassification. See contractor vs employee.

Rent, royalties, and other payments

Rent paid to landlords (other than corporations in some cases) can require 1099-MISC reporting. Interest and dividends paid by businesses can require other forms. Payments to attorneys may require reporting even when the attorney is incorporated. Some payments are not reportable, such as payments to the government or reimbursements of employees.

Payments to owners and family

Distributions to owners are not reported on 1099-NEC. Payments to an S-corp owner for services should be W-2 wages. Payments to family members as contractors may require 1099-NEC if the arrangement is legitimate. See hiring family members.

Receiving 1099s

If you receive a 1099-NEC or 1099-K, report the income on your return even if the form is wrong, and address any discrepancies with the payer. Compare to your records. A 1099-K may include amounts that are not income (personal transfers, refunds), so reconcile it. Do not ignore forms, because the IRS matches them to returns.

Common mistakes

No W-9 on file until January.
Paying by card and also issuing a 1099 (duplicate reporting), or paying by check and not issuing one.
Assuming all corporations are exempt.
Wrong name or TIN leading to notices.
Missing the January 31 deadline.
Not including rent or other reportable payments.
Failing to file state copies.
Not tracking vendor payments across the year.
Ignoring foreign payee rules.

Year-end timeline

Early December: review vendors and W-9s.
Late December: finalize payments and mark vendors.
Early January: run reports and prepare forms.
By January 31: file and furnish.
February through March: address corrections and state filings.

For help setting up a vendor and 1099 process, AE Tax Advisors can assist, and a discovery call is a good first step.