What responsibilities does a small business owner have during 1099 season?

Every January, the race is on for small business owners to prepare and file 1099 forms in time to meet annual IRS deadlines. These forms are used to report different types of nonemployment income paid to independent contractors, vendors, and other payees. Getting it right is essential, as errors or missed deadlines can lead to increased IRS scrutiny and penalties.

Key takeaways

1. Businesses are required to file 1099 forms with the IRS every year if they pay more than a certain amount to contractors.
   For 2025, businesses must file a 1099-NEC if they pay a contractor $600 or more during the year. For 2026, that threshold goes up to $2,000.
2. Meeting 1099 deadlines is essential to avoid costly fines.
   For the 1099-NEC form that reports amounts paid to nonemployees, the filing deadline is January 31. Late filings can lead to escalating penalties.
3. Automation simplifies compliance and helps ensure accuracy.
   Using solutions such as Avalara 1099 & W-9 can help business save time, minimize mistakes, and streamline 1099 filing with the IRS and state tax authorities.

The period known as 1099 season begins January 1 and leads up to IRS 1099 filing deadlines, which range from January 31 to March 31. During that time, business owners are responsible for payments they’ve made during the previous year, preparing and filing 1099s with the IRS, and issuing 1099 recipient copies to contractors and other payees. These forms provide a record of nonemployee income. Several states also have their own 1099 filing requirements.

The IRS uses several different 1099 forms for various income categories, and businesses are responsible for issuing the correct 1099 form to the IRS and the payee. IRS 1099 filing deadlines depend on the type of form and whether the 1099 is filed electronically or on paper.

For many small businesses, the key form is the 1099-NEC, used to report payments to independent contractors or vendors. The deadline for filing 1099-NECs (either electronically or on paper) and delivering 1099s to payees is January 31.

The 1099-MISC is the other most common 1099 form for small businesses. It’s used for miscellaneous payments, including rent payments or legal fees. The deadline for filing the 1099-MISC is February 28 if you file on paper. For electronic filing, the deadline is March 31.

If you work with contractors or vendors, chances are you’ll need to file 1099s. Generally, you must file a 1099-NEC if you paid $600 or more to an independent contractor, freelancer, or service provider during the year. That threshold increases to $2,000 for tax year 2026.

You must file a 1099-MISC if you:

• Paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• Paid at least $600 in rent, attorney payments, or other miscellaneous payments.
• Made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

It’s important to take 1099 filing responsibilities seriously. IRS penalties for late filing can range from $60 to $340 per form, depending on how late the filing is, with maximum annual penalties reaching up to more than $1 million for small businesses.

While the clock on 1099 season starts ticking January 1, Form 1099 compliance requires organization and attention to detail throughout the year. Here are the main responsibilities to keep in mind.

Collecting W-9s from contractors 

The first step in 1099 compliance is requesting a W-9 form from every nonemployee payee — long before you start preparing 1099 forms. This contractor tax form provides the vendor’s taxpayer identification number (TIN), which you’ll need to prepare the 1099. Having a process in place for collecting and storing W-9s is key to smooth operation when 1099 season starts. Without it, you may find yourself tracking down vendors at the last minute and risking errors and penalties.

Tracking payments throughout the year 

Throughout the year, maintain accurate records of all payments to contractors and vendors so you’ll be able to easily retrieve them when it comes time to file your 1099s. Using specialized software can simplify this process, ensuring you know exactly who was paid, how much, and for what purpose by year-end.

Preparing and filing 1099 forms 

When it’s time to start filing, make sure you’re using the right 1099 form. The IRS categorizes nonwage income into more than 20 types — each with its own 1099 form — but small businesses commonly use the 1099-NEC for nonemployee payments or the 1099-MISC form, which is for miscellaneous types of payments such as rent, royalties, or legal fees.

IRS 1099 forms can be prepared manually or electronically. Electronic versions are faster to file, more secure, and help avoid mailing delays. Tax software solutions often offer easy e-filing for 1099 forms. 

Meeting IRS deadlines

It’s crucial to understand the key deadlines for the type of 1099 form you’re required to file. The January 31 deadline for 1099-NEC filing applies to both reporting to the IRS and issuing recipient copies to payees. However, deadlines for other 1099 forms may vary for filing with the IRS, sending information to payees, and electronic vs. paper filing. 

Ensuring accuracy and compliance

Accuracy is essential to avoid problems with the IRS or state tax authorities. Mistakes such as TIN mismatches or incorrect amounts may seem small, but they can lead to big hassles. 

It’s easy to make mistakes on 1099 forms, especially if you’re filling out and filing each one manually. Some things to watch out for include:

• Missing deadlines. Filing even a few days late can trigger penalties.
• Failure to file. Make sure you understand requirements for filing. Rules such as minimum thresholds for payments per contractor can change from one year to the next. It’s up to you to keep track.
• Overlooking state filing. Many states have their own 1099 filing requirements in addition to IRS tax rules.
• Misclassifying workers. Treating employees as contractors (or vice versa) is a major compliance issue.
• Forgetting to collect W-9s. Without a W-9, you risk filing incomplete or inaccurate 1099s.

Manually preparing 1099s can be time-consuming and error-prone, increasing your tax risks. You can simplify the process with 1099 compliance solutions that increase accuracy, save time, and help ensure compliance with changing IRS and state rules.

Avalara 1099 & W-9 automation tools streamline every step of 1099 workflows. With our single online platform, you can:

• Digitally collect and validate W-9s.
• Send 1099s to payees electronically or by mail.
• E-file with the IRS and states without managing separate accounts.
• Automatically check your 1099 forms for common filing errors.

Tax compliance solutions such as Avalara 1099 & W-9 offer you the tax expertise you need to get 1099 filing done right — without having to take time away from your business to learn the ins and outs of 1099 compliance or manually filing 1099 forms one by one.

For small business owners, 1099 filing is a key tax compliance obligation. Putting strong systems in place to collect W-9s upfront, track payments accurately, and file on time are key to avoiding tax complications and penalties — not to mention 1099 season stress. Leveraging technology like Avalara 1099 & W-9 can automate the process for smooth 1099 compliance year-round, freeing up time to focus on growing your business.

What are the 1099 rules for business owners?

Business owners must collect W-9s from contractors and file 1099 forms with the IRS and send 1099 copies to payees every year.

What is the difference between a W-9 and a 1099?

A W-9 is a tax form filled out by a contractor that provides the contractor’s taxpayer identification number (TIN). This information is used to fill out a 1099 form, which businesses file annually with the IRS.

How much can a business pay someone without a 1099?

For 2025, a business must file a 1099 form if it pays more than $600 to a contractor. That threshold rises to $2,000 starting in the 2026 tax year.