If you’re a small business owner who works with contractors, freelancers, or service providers, chances are you’ve heard the term 1099—and maybe felt a little unsure about what it actually means. While it might feel a little scary, it’s really not as bad as it seems.
This guide breaks down what a 1099 is, the different types, who does (and doesn’t) need one, best practices, and what to do when a contractor won’t send a W-9—all in words that won’t make you pull your hair out (because we get it).
What Is a 1099?
A 1099 is a tax form used to report income paid to individuals or businesses that are not your typical W2 employees.
If you pay someone who is not on payroll for services—such as a freelancer, independent contractor, or consultant—you may be required to issue them a 1099. This form tells the IRS how much you paid that person during the year so the income can be properly reported on their tax return.
Think of it this way: Just like you have to send Form W2s to your employees, you also have to send Form 1099s to your contractors.
Common Types of 1099 Forms (And Which One Might Actually Use)
There are several types of 1099 forms, but most small business owners only deal with one or two.
1099-NEC (Nonemployee Compensation)
This is the most common form for small businesses.
You’ll use Form 1099-NEC if:
- You paid $600 or more to a non-employee
- The payment was for services (not product purchases)
- You paid them via cash, check, ACH, or direct deposit
Examples:
- Freelancers
- Virtual assistants
- Designers
- Photographers
- Consultants
- Coaches
- Bookkeepers (yes—even us!)
1099-MISC
This form is used less frequently now, but still applies in certain situations such as:
- Rent payments
- Royalties
- Legal settlements
- Certain prizes or awards
If you’re unsure which form applies, this is where having a bookkeeper involved can save you a lot of second-guessing.
Who Needs a 1099?
You generally must issue a 1099-NEC if all of the following are true:
- You paid an individual or business $600 or more during the calendar year
- They are not an employee
- They provided services (not goods)
- You paid them using cash, a check, or a debit card (yes, even a debit card)
Who Does Not Need a 1099?
This is where things often get a little hairy. You typically do not need to issue a 1099 if:
❌ They are an employee
Employees receive a W-2, not a 1099.
❌ You paid them via a third-party processor
Payments made through:
- PayPal
- Stripe
- Square
- Venmo (business transactions)
- Credit cards
…are generally reported by the payment processor instead (via a 1099-K).
❌ They are a corporation (in most cases)
Most C-corps and S-corps do not require a 1099, except for:
- Attorneys (all attorneys must receive a 1099)
- Certain medical or healthcare providers (you likely won’t encounter this)
This is why collecting a W-9 is so important—it tells you exactly how the contractor is classified.
Best 1099 Practices for Business Owners
Collect a W-9 Before You Pay Anyone
This is the single most important 1099 best practice.
A W-9 provides:
- Legal business name
- Tax classification
- EIN or SSN
- Mailing address
If you wait until January to ask for this, you’re setting yourself up for frustration. Instead, collect W9s throughout the year prior to issuing the first payment to that contractor.
We simply say, “Hey, I’d absolutely love to get you paid on this, but before I can, will you please send me an up-to-date W9? I’ve attached a blank W9 below! Thanks!”
Track Payments Correctly Throughout the Year
Accurate bookkeeping matters here. Your 1099 totals should match what’s actually been paid—not estimates, invoices, or guesses.
When your books are clean and categorized properly, 1099 preparation becomes straightforward instead of stressful.
✅ Send 1099s on Time
The deadline to send 1099-NEC forms to contractors and file them with the IRS is typically January 31.
Missing this deadline can result in penalties—even if the mistake was unintentional.
What If Someone Won’t Send a W-9?
This happens more often than you’d think.
If a contractor refuses or ignores requests for a W-9:
- Do not continue paying them until you receive it
- Explain that it’s required for tax compliance
- If necessary, you may be required to withhold backup withholding
Ultimately, the responsibility falls on you as the business owner to report payments correctly—regardless of how cooperative the contractor is.
Do You Have to Include 1099s in Your Bookkeeping?
Many bookkeeping services treat 1099s as an add-on or seasonal upsell.
At Ventures Bookkeeping, we do things differently.
1099 Tracking & Preparation Is Included (at no additional cost – outside of filing fees)
As part of our monthly bookkeeping services, we:
- Track eligible vendors throughout the year
- Ensure payments are categorized correctly
- Prepare and file required 1099s
- Help resolve missing W-9 issues before they become problems
No scrambling. No surprise invoices. No last-minute panic.
We believe accurate bookkeeping should support compliance—not create more stress around it.
Why Getting 1099s Right Matters
Incorrect or missing 1099s can lead to:
- IRS penalties
- Mismatched income reporting
- Notices and audits
- Strained contractor relationships
Handled properly, they become just another smooth, repeatable part of your business operations.
Final Thoughts
1099s don’t have to be confusing or overwhelming—but they do require consistency, systems, and attention to detail.
If you’re unsure whether you’ve handled them correctly in the past, or if you want them handled for you going forward, that’s exactly what we’re here for.
Clean books lead to confident decisions—and fewer January surprises.