Each tax season, one question always comes up from business owners: “Do I need to file a 1099 for this vendor?” Even seasoned entrepreneurs find the rules confusing. If you’ve ever been unsure, this guide will help clarify everything you need to know about 1099 requirements for 2025—from who qualifies to what forms are needed, deadlines, and the consequences of noncompliance.
Who Needs to File a 1099?
If you’re a business owner and you paid $600 or more in total during the year to an independent contractor, freelancer, or service provider who is not a corporation, you’re generally required to file Form 1099-NEC (or 1099-MISC in some cases). This applies to payments for services, not goods.
Common Scenarios That Require a 1099:
- Freelancers, consultants, graphic designers, or accountants
- Rents paid for office space or equipment (reported on 1099-MISC)
- Legal services (even if the attorney is incorporated, report on 1099-NEC)
Who Doesn’t Need a 1099?
Not every vendor or expense requires a 1099. Here are the main exceptions:
- Corporations: Generally, payments to S-Corps or C-Corps are exempt.
- LLCs: It depends on their tax election. If taxed as a sole proprietor or partnership, a 1099 is required. If taxed as an S-Corp or C-Corp, it is not—except for attorney fees, which always require reporting.
- Product or goods purchases: No 1099 is needed for merchandise, tangible goods, or utility payments.
Best Practice:
Always review your vendor’s W-9 form. This form identifies their tax classification and tells you whether a 1099 is needed. If they check “S-Corp” or “C-Corp,” you can generally exclude them—again, except for legal services.
What to Collect from Vendors
Before issuing any payments to an independent contractor, always request a completed Form W-9. This form provides the necessary details for proper IRS reporting, including:
- Legal name or business name
- Taxpayer Identification Number (TIN or SSN)
- Entity type (e.g., sole proprietor, LLC, corporation)
Pro Tip: Always collect a W-9 before making any payments. It’s significantly harder to obtain this information after work is completed or a vendor becomes unresponsive.
Key 1099 Filing Deadlines for 2025
- January 31, 2025 – Deadline to file Form 1099-NEC with the IRS and send a copy to the contractor.
- February 28, 2025 – Deadline to file Form 1099-MISC by paper with the IRS.
- March 31, 2025 – Deadline to file Form 1099-MISC electronically with the IRS.
Penalties for Late Filing:
Filing after the deadline can cost you $60 to $630 per form, depending on how late the forms are submitted and the size of your business. Failing to file altogether increases your audit risk.
If you have questions, contact Paragon today.
