Who Should Receive a 1099-NEC or 1099-MISC For Tax Year 2025?

An oft misunderstood part of the 1099 preparation process is which people and companies are you required to send one to. Many small businesses end up either sending out too many or too little because the rules are lengthy and confusing.

To avoid trouble with taxing authorities, it pays to know some of the essential rules around 1099’s. First off, be aware that while in the past the 1099-MISC was the only form necessary to provide to the nonemployees and vendors you paid throughout the tax year, there are now two forms – the 1099-NEC and the 1099-MISC. For contractors and subcontractors, the 1099-NEC is the form that you need. The 1099-MISC is used for payments to others like attorneys, landlords, medical facilities, royalty recipients, those you gave prizes and awards to, and so on. 

So, when is a 1099 required and when is it not? Start off with a list of all nonemployees, both individuals and businesses, that you paid during the year. The first thing to look at is which contractors and vendors that you paid $600 or more to in total. Most modern accounting software programs are able to generate a report showing the total paid to each vendor. Any person or company you paid less than $600 to throughout the year can be excluded from your 1099 list.

Once you have your $600 and over group, the next thing to check is were any of those payments via debit card, credit card, paypal, or some other form of payment whereby the merchant account provider or payment processor is required to provide a 1099-K to the recipient.

A 1099-K is a yearly tax statement from a company’s payment processor that includes all electronic transactions (debit/credit card transactions, etc.) received for the year. Most merchant accounts and payment processors are subject to 1099-K rules, but if you have any doubts, try contacting the processor and ask if they will be providing a 1099-K to their account holders. If a payment will show up on a 1099-K, you don’t need to worry about putting it on a 1099-NEC or 1099-MISC.

Companies you have bought merchandise or products from, such as inventory or supplies, do not have to be sent a 1099. You don’t need to provide a 1099 to real estate agents or property managers you pay rent to either, as long as the agent or property manager reports the rents received to the property owner on a 1099-MISC. The IRS further states that payments to the following kinds of companies or for the following kinds of purposes are not reportable on a 1099:

• bank fees
• postage stamps
• safety deposit boxes
• telegram and telephone companies
• freight and storage businesses
• delivery services
• utilities
• subscriptions
• internet and computer renewal fees
• bonding companies
• tax exempt organizations
• hospitals run by the U.S. government
• attorney licenses
• American and foreign government agencies
• expense reimbursements
• scholarship or fellowship grants
• canceled debt

You can further whittle your list down by researching which companies on your list are corporations or have made an election to be taxed as a corporation. You don’t need to provide a 1099 to a c-corp, s-corp or any LLC that has elected to be treated like a corporation for tax purposes, unless it is a health care company or a law firm.

Start by looking at the full company name on your vendor invoices. Any company with Inc at the end is a corporation. Just because a company doesn’t have Inc at the end of their name doesn’t mean they aren’t a corporation, though. You can check their structure by going to your state’s secretary of state website and doing a search for the company’s name. 

As I said earlier, LLCs can elect to be taxed as corporations. There’s nothing on the secretary of state’s list to tell you what election they might have made. That’s where looking at the business’s W-9 form comes in.

Every company or individual that you believe you might have to send a 1099 to needs to fill out a W-9 form, which has fields for what legal structure the company has and what tax election they have made. The W-9 also provides the company’s official name if different than that on your bills, the company’s official address, its EIN, and other vital information that’s necessary to fill out the W-9 and send it to the correct place.

In summary, start with a full list of all your vendors and contractors and then narrow it down by looking at the exclusion rules. 

• Do the total payments amount to $600 or over?
• Are the payments reportable on a 1099-K form?
• Were the payments made to a c-corp, s-corp or LLC that elected corporation treatment?
• Were the payments for goods or products?
• If for rent, did the payment go to a property manager or real estate agent?
• Were the payments to a type of company or for a purpose that the IRS specifies as excludable from 1099 reporting?

Make sure you have a W-9 on all vendors that do require a 1099-NEC or 1099-MISC. The W-9 should be kept on file, whether in electronic or print format. If you continue to do business with the vendor, then the W-9 should remain on file for the duration of the relationship. Beyond that, you should keep a W-9 for a minimum of four years after the relationship ends.

Copies of the 1099s and 1096(contains totals for all 1099s filed that year) should be kept for at least three years. You should mail 1099s to vendors by Jan 31^st of the following year in which the payments occurred. You have until Feb 28^th to mail the IRS its copies of the 1099s and 1096. 

If you want to learn more about 1099 rules, view the IRS’s pdf instructions here.

Have questions? Contact us here.