When Are You Required to Issue a 1099?

by
Paul Koullick
Updated 
August 2, 2024
Icon check
Reviewed by
Tax guide
When Are You Required to Issue a 1099?
Summary:
Videos on this topic

Contents

Don't just assume that your responsibilities end with issuing W-2s to the employees on your payroll; you may have other outgoing payments that need to be reported on Form 1099. You could find yourself in trouble with the IRS if you fail to file the appropriate returns.

The IRS tax Form 1099 is one of the IRS's most important tools combating underreporting of income. So what is a 1099, and when are you required to issue that form to a taxpayer?

Read on for all your 1099 questions answered.

What is Form 1099-MISC?

In case you were wondering what a Form 1099-MISC is...

It is an Internal Revenue Services (IRS) document that covers several types of business transactions, hence why it's labeled MISC for miscellaneous income. They are typically used for non-employee compensation or miscellaneous compensation. The 1099 is for small business owners or sole proprietors you have paid that isn't on your actual payroll, such as:

  • Independent contractors
  • Freelancers
  • Self-employed individuals

These service providers have to file a form 1099-MISC.

When are you not required to issue a 1099?

There are several scenarios where you do not need to report outgoing payments. Here are the most common examples:

Personal payments

Form 1099 is generally only necessary for business payments, not personal payments. This might include paying back a friend for a night's out, or sending your nephew some money for his birthday.

Payments to corporations

Except incorporated lawyers from law firms who give you legal services, you do not need to report payments to corporations on a Form 1099.

{upsell_block}

Payments of less than $600

As discussed previously,  if the 1099 payments amount is under $600, you will not receive the form.

Payments to freelancers hired through third-party Services

If you hire a freelancer through a third-party service such as Upwork or Fiverr, you won't need to issue a 1099 as the third-party service is technically the one doing the hiring.

{write_off_block}

How do I know if I need to issue a 1099?

How do you know when an outgoing payment requires you issue a 1099? What are the reporting requirements? There are four questions to ask yourself when deciphering whether you need to issue a Form 1099-MISC.

1) What was the purpose of the payment?

Not all types of payments call for a 1099. For example, the purchase of goods or other tangible assets are not typically covered.

Some outgoing payments that warrant a 1099 include:

  • Payments to an attorney
  • Rent payments
  • Healthcare payments
  • Interest payments
  • Royalties
  • Crop insurance proceeds
  • Services rendered
  • Broker payments
  • Payments to crew members of a fishing boat

{email_capture}

2) Who were you paying?

1099's are issued for payments made to a payee like partnerships, individuals, and business entities. Essentially, they are issued to everyone except corporations.

If you paid an independent contractor such as a graphic designer, social media consultant, web designer, or copywriter more than $600 within the calendar year, you will need to issue them a 1099. The income meets the requirements and is reportable.

LLC's, or limited liability companies, should receive 1099s unless they have chosen to be taxed as a corporation.

Instructions on the Form 1099-MISC provide six specific instances where a 1099 is required for payments to corporations.

3) What was the method of payment?

You'll only need to issue a 1099 for direct payment methods such as cash, check, or bank transfers.

You don't need to report credit card or third-party transaction network payments on a Form 1099-MISC. They can be reported on a Form 1099-K.

4) What was the payment amount?

For payments below the minimum threshold of $600 or less, you do not need to file form 1099-MISC.

You can still file if you so choose. The recipient of the payment is not excused from reporting the payment regardless of the amount or whether you file.

Other 1099 examples

There are several scenarios and filing requirements where you do not need to report outgoing payments. Here are the most common examples:

Form 1099-K

Form 1099-K is for reporting receipts collected from third party transaction networks such as Cash App and PayPal. If you have an online store or pay employees or contractors via a third party site, you will likely need to report with a Form 1099-K.

Form 1099-CAP

This form is issued to shareholders when they receive cash, stock, or property in a transaction.

Form 1099-C

This form is only for organizations that are in the business of lending money. Form 1099-C is for reporting canceled debts.

Form 1099-DIV

For companies that issue stock and dividends, dividend payments must be reported on a Form 1099-DIV.

Form 1099-S

This form is used to report profits from real estate transactions. You do not need to issue this form if the real estate transaction is $250,000 or less for the sale of a primary residency or if the transferor is a government entity or corporation.

Form 1099-INT

Financial institutions must issue this form for interest income payments exceeding $600 within one year.

What about backup withholding?

If you backup withhold, you must issue a Form 1099 no matter what the payment amount was. Normally the minimum threshold for payments before you need to issue a 1099 is $600.

However, if the contractor is subject to backup withholding, you must issue the appropriate Form 1099 even if you pay them under $600 in a year.

Final thoughts

You don't want to find yourself in hot water with the IRS because you didn't file the appropriate claims. Be sure to file the appropriate Form 1099s for all relevant outgoing payments.

If you're still feeling uncertain about whether you're required to issue a 1099, consult a tax professional or CPA in the United States. It will save you headaches and worry over whether you're filing correctly at the end of the tax year.

You can also check the IRS.gov site for general instructions or call the IRS directly if you have further questions. The toll free number is 1-866-455-7538.

Paul Koullick

Paul Koullick

websitetwitter-link

Paul Koullick is the co-founder and CEO of Keeper. He's committed a decade of his career to the consumer tax industry, and has been quoted as an authority on taxes in U.S. News & World Report, Vice, Forbes, and others. Paul holds an A.B. from Harvard University, and loves jogging and chess.

File complex taxes confidently

Upload your tax forms and Keeper will prep your return for you. 100% accuracy and maximum refund guaranteed. Plus, a tax pro reviews and signs every return.

Expense tracking has never been easier

Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.

Get started
I’m a self-employed ...
Lyft / Uber driver
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Actor
Adult entertainer
Airbnb host
Amazon Flex driver
Artist
Athlete
Attorney
Audio engineer
Beekeeper
Blogger
Brewer
Car rental provider
Caterer
Chauffeur
Chef
Childcare provider
Chiropractor
Cleaner / housekeeper
Commercial painter
Community manager
Computer technician
Construction contractor
Consultant
Content creator
Costume / fashion designer
Customer support specialist
Delivery driver
Dentist
Designer
Dog walker
Doula
Electrician
EMT
Esthetician
Event planner
Exterminator
Farmer
Financial advisor
Firefighter
Florist
Hairstylist
HVAC technician
Insurance agent
Interior designer
Ironworker
Janitor / custodian
Lab technician
Landscaper
Lifeguard
Loan officer
Lyft / Uber driver
Machinist
Makeup artist
Marketer
Massage therapist
Mechanic
Medical biller / coder
Model
Mover
Musician
Nail tech
Notary / signing agent
Nutritionist / dietitian
Oil / gas contractor
Online seller
Personal concierge
Personal trainer
Pharmacy technician
Photographer
Physician
Plumber
Pressure washer owner
Property owner / real estate investor
Railroad contractor
Real estate agent
Recruiter
Referee
Salesperson
Security guard
Social worker
Sommelier
Streamer
Sports coach
Tattoo artist
Teacher / tutor
Therapist
Trader
Travel nurse
Translator / interpreter
Truck driver
Veterinarian
Virtual assistant
Web developer
Wedding planner
Welder
Writer
Yoga teacher

At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email support@keepertax.com with your questions.