How much can I pay someone without issuing a 1099?
The threshold is $600. If you pay someone $600 or more during the calendar year for services they provided as a non-employee, you need to send them a 1099-NEC by January 31 of the following year. Pay them $599 and you’re not required to file anything.
This is per vendor, per year. Five payments of $150 to the same contractor equals $750 total, which triggers the filing requirement. Four payments of $100 to the same person equals $400 total, which does not. The IRS looks at the annual total, not individual transactions.
The rule applies to payments for services, not products. Buying $2,000 worth of inventory from a supplier doesn’t require a 1099. Paying a contractor $2,000 to install equipment does.
There are exceptions that reduce your filing burden. Payments to corporations generally don’t require 1099s. If you paid an S-corp for web design or an LLC taxed as a C-corp for consulting, no 1099 needed in most cases. Attorney fees are an exception to this exception. You must issue a 1099 to lawyers regardless of their business structure.
Payments made via credit card, debit card, or payment apps like PayPal and Venmo marked as goods and services don’t require you to issue a 1099 either. The payment processor reports these transactions on a 1099-K instead. You’re not responsible for reporting something that’s already being reported elsewhere.
Collect W-9 forms before you pay anyone. The W-9 tells you their legal name, address, tax ID, and entity type. Without it, you’re guessing at year-end whether you even need to file. Getting a W-9 from someone you haven’t paid in eight months is frustrating and sometimes impossible.
Track payments throughout the year in your monthly bookkeeping. Vendor payments should be categorized so you can pull a report showing who received what. Reconstructing a year’s worth of contractor payments in January leads to missed filings and wrong numbers.
The penalties for not filing add up quickly. Missing the deadline costs $60 to $310 per form depending on how late you are. Intentional disregard can trigger penalties of $630 or more per form. If you paid a subcontractor $800 and skipped the 1099, the penalty could easily exceed what you paid them.
When you’re unsure, ask for a W-9 and track the payment. Bookkeepers who work with small businesses handle this routinely. The work of collecting information you might not need is far easier than chasing it down in January when you discover you do.
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