Summary of the Types of Vendors That Typically Require a 1099
Written By Marin Thompson, Administrative Assistant at BEC CFO & CPA
Businesses are required to issue Form 1099-NEC or Form 1099-MISC to certain vendors under specific conditions. Here's a summary of the types of vendors that typically require a 1099:
General Rules:
Independent Contractors or Service Providers:
Paid $600 or more during the calendar year for services performed for the business.
Includes freelancers, consultants, and contractors.
Sole Proprietors, Partnerships, or LLCs:
Payments made to individuals, sole proprietors, or partnerships, as well as LLCs taxed as such.
Generally, payments to corporations are excluded, except for specific cases (e.g., attorneys).
Attorneys and Law Firms:
Payments of $600 or more are reportable, even if the law firm is incorporated.
Rent Payments:
Payments of $600 or more for business rent (e.g., office space, equipment rentals) made to a landlord, unless the landlord is a corporation.
Medical and Healthcare Providers:
Payments to healthcare providers, such as doctors, for medical or healthcare services.
Prizes and Awards:
Payments for prizes, awards, or other compensation outside employment that exceed $600.
Other Miscellaneous Payments:
Payments for non-employee compensation, certain royalties, or other taxable items.
Exceptions (No 1099 Required):
Payments to corporations (except attorneys and healthcare providers).
Payments made via credit card or third-party network transactions (these are reported on Form 1099-K by the payment processor **See below for more information).
Purchases of goods or merchandise.
Wages paid to employees (reported on Form W-2, not 1099).
Filing Threshold:
Only required for vendors who were paid $600 or more during the tax year (cumulative).
It’s important to collect Form W-9 from all vendors at the beginning of a business relationship to determine if they require a 1099.
Third-party payment networks and processors, such as credit card companies and online platforms, are required to issue Form 1099-K to report certain payment transactions. These include platforms that process payments between buyers and sellers, like:
**Examples of Third-Party Networks:
Online Payment Platforms:
PayPal
Venmo (for business transactions)
Stripe
Square
E-commerce Platforms:
Amazon (for sales through their platform)
Etsy
eBay (for managed payments)
Ride-Sharing and Gig Economy Platforms:
Uber
Lyft
DoorDash
Airbnb (for hosts)
When They Issue a 1099-K:
As of 2023, the IRS requires third-party payment processors to issue a 1099-K to sellers or recipients of payments if:
The total payments exceed $600 annually (aggregate across all transactions).
This threshold was previously higher (over $20,000 and more than 200 transactions), but the change lowers the reporting threshold significantly.
Key Notes:
These companies handle reporting on payments made through their platforms, so the business using the platform generally does not need to issue its own 1099-NEC or 1099-MISC for these payments.
Transactions processed via these platforms are considered "third-party network transactions" and are reported on Form 1099-K by the platform itself.
It’s important for businesses to track how payments are processed to avoid duplicate reporting and to verify what has already been reported by third-party platforms.
Accurate 1099 reporting is essential for tax compliance, as it ensures income transparency for the IRS and helps vendors and contractors report their income correctly. Proper filing prevents penalties, which can range from $50 to $290 per form or higher for intentional disregard, and reduces the risk of audits for both businesses and recipients. It’s a legal requirement that supports trust and strong relationships with vendors while mitigating risks of double taxation, fraud, and non-compliance. To ensure accuracy, businesses should collect Form W-9, track payments properly, and stay informed on IRS guidelines to avoid errors and duplicate reporting.