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Overview

If you’ve paid more than $600 to contractors, lawyers, or rent in the previous year, you might need to file a Form 1099 to the IRS and the recipient. This isn’t a tax you owe, it’s a form the IRS uses to track income that other people need to report.

It’s due by January 31. Most founders learn about the requirement just a few weeks before, which can lead to last-minute stress. A simple system upfront can save you the scramble, but if you’re playing catch-up now, that’s okay.

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Filing requirements

Your company needs to file a 1099 if all of the criteria below are met:

  • Paid ≥ $600 to a vendor in the last calendar year
  • Paid by ACH, wire, check, or cash (not credit cards)
  • Paid for services (not goods), including contractors, legal fees, design work, etc.
  • Paid to a vendor with US tax residency
  • Paid to a company that is not a corporation

So the Contract Designer you paid $2,000 via ACH needs a 1099. The $6,000 legal fee paid via credit card does not, since the card processor automatically handles reporting.

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Filing deadline

1099s are due by January 31 every year, for filing requirements from the previous calendar year. You’re required to submit the form to both the IRS and the recipient.

If you miss the deadline, there are technical penalties ranging from $60–$330 per form, depending on the size of your business, and the penalties increase the longer the form goes unfiled. We’ve seen that penalties for late filings are uncommon, even for larger startups with significant revenue. That said, we don’t recommend skipping it. Just do your best.

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Why 1099s exist

The IRS wants records for earned income so it can accurately collect taxes. When you pay someone via ACH or check, there’s no third-party platform like a payroll or credit card processor to report that income. The 1099 is how the IRS confirms that money changed hands and ensures the recipient reports it as income, and therefore pays taxes.

It’s not just busywork since your vendors may actually depend on these forms to file their taxes, especially individual contractors and sole proprietors.

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How to file a 1099

If you think you need to file a 1099, here’s what to do:

  1. Collect a W-9 from them to further determine if a filing requirement exists. Sometimes a vendor could be a Corporation or a non-US company.
    • This gives you the contractor’s legal name, tax classification, location, and EIN or SSN. You’ll need all that info to file a 1099.
  2. Once the requirement is confirmed, complete the Form 1099 and submit it to the IRS and the recipient by January 31. Instead of printing and mailing, use a filing service like Track1099 to submit the form to the IRS and the vendor. It’s faster and more secure.

If you’re using Finta, we’ll help you determine which vendors need 1099s and even file for you.

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Tips

  • When you’re about to pay a vendor via ACH or check, process it through a tool like Mercury or Ramp, where they collect the vendor’s W-9 before they can get paid. This will remove a huge bottleneck when 1099s are due.
  • Technically, you’re still supposed to file a 1099 with any info you do have. But if a vendor ghosts you and doesn’t provide their W-9, just skip the filing to avoid triggering more IRS confusion while keeping a record of your outreach attempts.

1099s aren’t complicated once you’re organized. Put a process in place and collect W9s early.