The nitty gritty about 1099s

There can be a lot of confusion around 1099s. And to be fair, the rules are ever changing, so let’s break down 1099s and filing requirements for 2023,

What is a 1099?

A 1099-NEC is an IRS form used to report non-employee compensation (aka payments to contractors) of $600 or more in a given tax year.

When a business issues a 1099 to an individual, one copy goes to the individual and the other goes to the IRS. 

Think: W2 but for contractors.

1099s ensure that people are reporting their income. If the IRS receives your 1099s and you don’t report that income on your tax return, it’s a red flag. 

How does it work? 

When you hire a contractor, it’s best practice to request a W9 from them and keep it on file. A W9 gives you all the information you need to issue them a 1099, should filing be required.

January of each year is what us accountants call “1099 season”. It’s a short busy season where we rush to issue all our client’s 1099s from the previous year by the deadline of the 31st. We do all we can to prepare as much as possible ahead of time to make this process a seamless one for everyone involved. 

Who gets one?

Any individual (or LLC) who was paid $600 or more throughout the tax year through the following methods:

• Cash
• Check
• Zelle
• Personal Venmo
• PayPal Friends & Family 
• ACH

Who does not get one?

Contractors who were either paid less than $600 via the above methods OR were paid via 3rd party payment processors/credit cards, PayPal Goods & Services, or Venmo for Business

This means that if you invoice your clients and they pay via Stripe or other payment processor, you should not be receiving a 1099 from them. 

And if you pay your contractors by credit or debit card, you don’t have to issue them a 1099 🙌🏼

You also never have to issue 1099s to S Corps. When your client gives you their W9, they’ll check the box for the type of entity they are. Usually they’ll check LLC/Sole Proprietor but if they check S Corp, you don’t need to issue them a 1099!

How can you make this process seamless in the future?  

• Use a payroll processor like Gusto to pay your contractors. Gusto will take your contractors through an onboarding process, where they electronically collect and store all the data they need, including their W9. All of their payments will be in one place, so there’s no need to scroll through a years worth of Venmo payments and hope you added everything up correctly. Plus, Gusto even offers to issue the 1099s for you at the end of the year. 
• Avoid the 1099 filing requirement entirely by asking your contractors to invoice you and pay them via credit/debit card.