The 411 On 1099s: Who Has To File, Why You Need To File, And What Happens If You Don’t

Updated for 2022

What is a 1099 and what does it have to do with your business? If you’re clueless about who has to file a 1099, you’re not alone! Get the 411 on 1099s here: who has to file a 1099, who receives them, and what happens if you DON’T file them.

Over the years, I’ve found that one of the BIGGEST mysteries to entrepreneurs at all levels is good old form 1099. People simply don’t know who has to file a 1099, who has to receive them, and–most of all–what happens if they DON’T file them. In fact, if you’re thinking right now, “what is a 1099,” you’re not the only one!

Some entrepreneurs had no idea that they were even responsible for filing them. Others are clueless about the filing rules. BOTH of these situations are understandable.

After all, the rules for filing any tax form aren’t always black and white. That’s true to the IRS’s style (and one of the reasons I stay in business!)

So today I’m going to take some of the mystery out who has to file a 1099. There is much confusing information out there about 1099s, so I’m going to sum up the process. You’ll learn what they are, who has to file them, and how to manage the process. And most of all, how to avoid any 1099 headaches!

First, let’s start with the basics. What exactly is a 1099 Form?

It’s a tax form with a record that someone who is NOT your employer paid you money. The person or entity who paid sends one copy to the payee and one to the IRS. 

You gather the information needed to file the 1099 from a W9 form, the contractor fills out the W9, which in turn gives you the data you need to determine if you should file a 1099 or not.

That means if you as a business owner hired a contractor, a coach, or another type of outside services and paid them, you’d be required to file a 1099. You’d then send one copy of the 1099 to the payee and one to the IRS. 

The 1099 Challenges For Employers:

As a business owner myself, I have contractors and vendors to whom I’m required to send 1099s. Moreover, after years of leveraging myself at a mastery level, I still get much push-back from some of them regarding 1099s. 

But ultimately, it’s MY responsibility to ensure that I eliminate (or minimize) liability for my business. I also aim to help my clients eliminate the consequences of not filing 1099s for their subcontractors. 

So getting on the same page with your clients and contractors regarding 1099s is the first big hurdle. 

The other challenge of 1099s is helping my clients get all the needed information tfile their 1099s by the January 28th deadline. What I have found is that it usually isn’t my clients that hold up the process, but their subcontractors.

That’s the thing. It’s up to you as the business owner to guide the relationship with your subcontractors, and make sure the 1099 responsibilities are handled. 

After all, business owners are the ones who get the hit with the hefty fines if the 1099s aren’t filed! 

So let’s get down to the 411 on who has to file a 1099. We will save you time, aggravation, and potentially thousands of dollars in penalty fees.

Below are the answers to the top 5 questions I get about 1099s.

1-To whom are business owners required to send a Form 1099?

Business owners must issue a Form 1099-NEC to each person to whom you’ve paid at least $600 in business-related expenses. That includes things like rent, services, prizes and awards. It also includes other income payments such as commissions and bonuses. Also, if you hire a non-U.S. citizen who performs any work for you outside of the United States, you need to file a 1099. 

NOTE: In 2020, The 1099-NEC (Non-Employee Compensation) Form replaced the 1099-MISC Box 7. It’s a different From, but the same result.

Examples of Who Might get a 1099 from you: Accountants, contractors, coaches, graphic designers, assistants, subcontractors, marketing/public relations firms, repairs, commissions, and bonuses not put through payroll. 

Fun Fact: *Even if your lawyer is incorporated, you are still required to send them a Form 1099 if you paid them more than $600.*

1-Who doesn’t need get a 1099?

These are the most common people and entities to whom you don’t need to send a 1099: 

• Incorporated Companies (A company with , “Inc.” behind its name)
• LLCs or partnerships if they are elected as an S or C-Corp.
• Payments made for personal purposes.
• Employees who get a W2 and processed under payroll.
• Sellers of merchandise, freight, storage, or similar items (anything tangible).
• ​​If you hire a foreign contractor that is not a U.S. citizen and the services are wholly performed outside the U.S., then no Form 1099 is required, and no withholding is required. However, you will want to have W-8BEN on file for them to confirm this. The Form W-8BEN supports why no Form 1099 was issued and why no tax was withheld.

3-What is the difference between a subcontractor and an employee (and who gets the 1099?)

Essentially, a subcontractor is a person or company you have paid for services who isn’t on your payroll. Subcontractors set their hours, come with the equipment and skills, and provide their own benefits (such as insurance). They have other clients and set their rates. 

Employees are the inverse. That means that so you would manage them, train them, provide equipment, and set their hours and their pay.

Bottom line: employees do NOT get 1099s, but subcontractors DO. 

4-Can I file 1099s Electronically?

Yes. If you have more than 250 1099s to file, you are required to file them electronically. Any number fewer and you have a choice. Software such as Quickbooks has an option to file 1099s but I personally preference Track1099.

(Still, I’d have a professional review everything before you file them, just to be safe. )

NOW, the question EVERYONE asks…

5-What happens if I don’t file the necessary 1099s?

If you are required to file and fail to do so, you may be subject to a $580 intentional disregard in 2023 PER 1099 not filed. Definitely something that you don’t want! 

Now, let’s look at a few common myths about 1099s:

Myth #1: Nonprofits don’t get 1099s. False! Your company must file Form 1099-MISC with the IRS for any non-corporate nonprofits to which your company paid $600 or more in exchange for services during the tax year. You must also send this form to the nonprofit. Request that any nonprofit you paid or provided goods to in exchange for a service complete a W-9.

Myth #2: I get paid through a merchant service like Paypal, therefore I shouldn’t get a 1099. True and False! If you pay a personal paypal account, you will still need to file a 1099, if you pay a business account you do not need to send a 1099 because they will receive a 1099-K. Be sure to get clear on which account type it is and ensure you’ve made all payments through this merchant.

Myth #3: If I hire someone outside the United States I don’t have to send a 1099. True and False. If you hire someone outside of the United States as a US based company and this person is a US Citizen, you are required to still send them a 1099. If you hire someone outside the US and they are NOT a US Citizen you need to follow the rules for hiring a subcontractor outside the US, learn more here.

Now let’s hit some key points and about filing (and receiving) 1099s:

The W-9 Form is GOLD. One of the smartest policies a business owner can implement is to request a W-9 from your vendors that are 1099 eligible. Do this even before you meet the $600 threshold. It’s easier to have it on file than it is to try and get one last minute if you go over the $600. You can keep the same W9 for a vendor on file as long as the information doesn’t change. So, in theory, you can have one W9 for several years for each vendor. It’s also essential that you have the signature on the W9 from your subcontractors.

You can download a W-9 here.

If you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live.

That means that you still need a 1099 from U.S. based clients. However, you may qualify for specific foreign earned income exclusions  or foreign income tax credits. Please refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for additional information.

​If you want to get a deep dive on the following below, check out my blog here.

For foreign contractors (i.e. non-US citizens where work was performed outside of the US), you will need to collect a W8-BEN. We don’t file anything on their behalf, but we need to keep it on file as part of compliance.

If audited, you have proof of it why no 1099 was issued. This clears you of any liability.

Non-employee compensation paid to nonresident aliens is reported on Form 1042-S. This is indicated for Foreign Persons Foreign Persons working within the US but not US Citizens. The same threshold applies, $600 or more
in a year.

If you cannot provide the proper forms and withholding you cannot take it as a business expense. The only exception is if it was under $600. Then you can count it as a business expense and you won’t have to file a 1042-S.

Click HERE for Publication 515 for the withholding steps!

It’s a lot of steps to file within 5 business days of payment. And if you withhold the taxes and the account earns more than $10, you have to give
that interest to the non-employee nonresident and report that income for them as well.

I hope this has helped you sort out the mystery of 1099s! In the video below, I go into more Q&A about who has to file a 1099, who doesn’t, and what happens if you don’t. Check that out HERE ⬇️

Now, if you’re still not quite sure who needs 1099 from you (or who doesn’t), we have a great course on DIY Finance powered by Quickbooks Online that answers the burning questions about how to know the difference between subcontractors and employees, how to pay yourself as a business owner, and much much more.

Until next time,

Love, Light, and MONEY, Honey…

Kaylee