Small business 1099: What you need to know for 2025

When tax season rolls around, it's time to gather and issue all necessary tax forms for your small business, including the crucial Form 1099. Whether you've sent or received them in the past, understanding this form is essential for filing your small business taxes accurately.

While there are various 1099 forms, small business owners and freelancers typically only need a few. If you're unsure which Form 1099 to use and how to file it, let's dive into the key small business 1099 forms.

• How small business 1099 forms work
• Employee vs. contractor tax obligations
• Types of small business 1099 forms
• When do you need to send 1099-NEC forms?
• Where can you get 1099 forms?
• Small business 1099 filing requirements
• 1099 filing tips for small businesses
• Penalties for incorrect or late filings on small business 1099

How small business 1099 forms work

If small businesses pay certain expenses or receive certain forms of income, they will either need to send or receive a Form 1099. The IRS sets thresholds that will determine whether you need to fill out a 1099 form. For the most part, the IRS sets the minimum for 1099 forms at $600. 

For example, if you receive over $600 in miscellaneous income, such as prize money, you’ll likely get a 1099. Or if you pay a freelancer more than $600, you’ll need to send them a 1099. There are 1099s for all sorts of transactions, such as interest income, real estate proceeds, and debt cancellation. 

The most notable small business 1099 form is the Form 1099-NEC. Form 1099-NEC is for reporting nonemployee compensation. Typically, when someone asks about a small business 1099, they’re talking about the 1099-NEC form. Also known as the contractor tax form, small businesses send this form to independent contractors to whom they pay more than $600 during the year. 

Employee vs. contractor: tax obligations for small business

When hiring for your small business, it's important to understand the distinction between in-house employees and contractors. This difference has significant implications for tax obligations and reporting.

Employee

Employers withhold taxes (local, state, and federal) from an employee's paycheck. Businesses issue a W-2 form to report wages and the taxes withheld to both the employee and the IRS at the end of the year.

Example: If you pay an employee $65,000 annually, you are responsible for withholding a portion of their pay for taxes and paying your share of payroll taxes. At the end of the fiscal year, you will provide them with a W-2 for tax filing purposes.

Contractor

If a contractor is paid more than $600 in a year, the business must issue a 1099-NEC to report the total payments. However, no taxes are withheld from these payments.

Example: If you pay a freelance graphic designer $15,000 over the year, you don't withhold any taxes. Instead, you provide them with a 1099-NEC form, and they will handle paying their own taxes.

Types of small business 1099 forms

There are over 20 types of 1099 forms. Many small businesses will only come in contact with a handful. There is the 1099-NEC, but also the likes of the 1099-MISC form, which allows businesses to report miscellaneous income and expenses. 

Five of the more common 1099 forms small businesses send or receive are: 

• Form 1099-MISC: This form is for reporting miscellaneous income, such as prizes and attorney fees. Small businesses may both send and receive this form. 
• Form 1099-NEC: This form is similar to the 1099-MISC, but it specifically reports nonemployee compensation of over $600. You’ll use it to report payments to independent contractors who are not employees. 
• Form 1099-K: If you process payments through a third-party payment application, such as PayPal or Venmo, and meet the current threshold, you’ll receive a Form 1099-K. The IRS plans to decrease the threshold to $600 in gross payment volume for the 2025 tax year and beyond. 
• Form 1099-INT: This form reports interest income, such as from bank accounts. Small businesses may receive this form if they have interest-bearing accounts or investments and generate over $10 in interest during the year.
• Form 1099-DIV: This form reports dividend income, such as from stocks and mutual funds. Small businesses may receive this form if they own investments that pay dividends and collect over $10 in dividend income during the year. 

The specific 1099 forms that a small business receives will depend on the type of income it generates and the payments it makes to others.

When do you need to send 1099-NEC forms?

When it comes to issuing 1099-NEC forms in particular, if you pay any freelancer or contractor over $600 for the calendar year, you’ll need to send them one. In other words, you send a 1099-NEC to each contractor you pay over $600. 

1099-NEC forms serve two purposes: 

1. Reports nonemployee compensation payments to the IRS 
2. Allows your contractor or freelancer to do their taxes 

If you are a small business with employees that you issue a paycheck to and withhold payroll taxes, you won’t issue a 1099-NEC to them. Instead, you issue employees a W-2 tax form. However, there are other 1099 forms your small business may need to send or receive that have nothing to do with your workers. 

Note that Form 1099-NEC is for nonemployee compensation. If you need to report payments of over $600 for other things, such as rent, prizes and rewards, attorney fees, and medical and health care payments, you’ll use Form 1099-MISC. 

State-specific considerations

Remote work and cloud-based platforms have made it easier for small businesses to hire contractors and freelancers across the US. However, managing 1099 reporting across multiple states can be complex.

Here are key considerations:

• State-specific forms: Some states require additional forms or have unique reporting 1099 requirements.
• State taxpayer identification numbers (TINs): Independent contractors may need state-specific TINs, which employers should verify for accuracy.
• State tax withholding: Some states require employers to withhold state income tax from payments to independent contractors and report the withheld amounts on state 1099 forms.
• State-specific filing deadlines and requirements: Deadlines and reporting requirements can vary.
• State-specific penalties: Noncompliance can result in penalties and interest.

While the IRS Combined Federal State Filing Program (CF/SF) simplifies reporting for some states, certain 1099 forms often require direct filing, especially the 1099-NEC form. This can be challenging due to differing thresholds, deadlines, and filing methods across states.

Where can you get 1099 forms?

If you are filing by paper, you can find blank informational copies on the IRS website, such as the 1099-NEC. However, you’ll need to order blank pre-printed 1099s that you can use. 

Note that before preparing your 1099 forms, you’ll need to collect W-9 tax forms from those you need to send 1099 forms to. The W-9 form for independent contractors is the equivalent of the W-4 form that employees complete. It contains key information, such as Social Security or tax identification number. 

If you use accounting software like QuickBooks, you can simply electronically file your 1099s.

Small business 1099 filing requirements

The process for filling out your 1099 forms is similar, no matter which form you need. You’ll find that there are several copies: 

• Copy A you’ll send to the IRS 
• Copy 1 you’ll send to your state tax department (if required)
• Copy B and Copy 2 go to the recipient, such as your independent contractor 
• Copy C is for your records 

The recipient will use their copies to file their federal and state tax returns. The due date for filing 1099 forms is March 31 if done electronically (or Feb 28 if by paper).

1099 filing tips for small businesses

Small businesses can make filing small business 1099 forms easier with a few best practices. 

To ensure a smooth 1099 filing process, follow these steps:

1. Gather necessary information: Collect the information you’ll need from your small business tax prep checklist. This includes info from each payee or independent contractor. It’s best to have them complete a Form W-9 to get their info before doing business together. 
2. Complete your forms correctly: Use the appropriate 1099 form, such as the 1099-MISC or the 1099-NEC, for nonemployee compensation. Fill in the required information for each contractor, including the amounts paid.
3. Submit to agencies: Send a copy of each completed form to both the contractor and the appropriate agency. This will be the IRS for most small businesses, but you may also need to send copies to your state tax department.
4. Be aware of deadlines: The deadline for many 1099 forms is March 31 if you e-file, but deadlines are usually sooner if you paper file. Also, the deadline for Form 1099-NEC is much earlier than others—on Jan 31. 
5. Keep records: Maintain copies of the 1099 forms and any supporting documentation for at least three years. These records can help with tax audits or other purposes.

When filing ‌your 1099 form, here are some of the key sections you’ll need to fill out:

Having a filing system for your Form 1099s can ensure you’re in compliance with tax laws and avoid penalties. Remember to stay up-to-date on tax changes and consult with a tax professional if needed.

Potential penalties for incorrect or late filings on small business 1099

Missing the deadline for filing an incorrect 1099 form can result in fines and fees. Adhering to the 1099 due dates helps avoid accumulating penalties.

The IRS imposes varying penalties for late 1099 submissions:

• $60 per form if filed up to 30 days late
• $130 per form if over 30 days late but before August 2nd 
• $330 per form after Aug 1 or if not filed at all
• $660 per form for intentional disregard of filing requirements

To prevent these penalties, file your 1099 forms accurately and on time, and verify essential details, such as taxpayer IDs, income amounts, and names.

Find peace of mind come tax time

Small businesses have to comply with various 1099 filing requirements. Figuring out which small business 1099 forms to use can be overwhelming. Properly managing and filing these forms is an important aspect of running a small business and maintaining good tax practices.

Accounting software with integrated payroll services, such as QuickBooks Payroll, can streamline the process of managing payroll, accounting tasks and 1099 form filing. These tools provide automation and guidance, helping you stay organized and compliant.



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