Startup guide to filing 1099s

As a startup, managing contractor and vendor payments is a crucial task that ensures compliance and financial transparency. One of the key responsibilities you'll face is filing Form 1099, which reports contractors' income to the Internal Revenue Service (IRS). 

While filing a single 1099 might seem straightforward, the complexity increases when dealing with multiple nonemployee payments. With 17 different forms, each with unique reporting requirements, managing this process can be challenging. 

Startups often have a lot of questions, like figuring out the right form for freelancers, how to report credit card payments, and dealing with discrepancies between Employer Identification Numbers (EIN) and vendor names.

In this guide, we break down the basics of filing 1099s and share proactive steps you can take throughout the year to stay organized and compliant.

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What are 1099s?

Form 1099 is used to report nonemployee income that a business or individual earns throughout the year. As a startup, it's your responsibility to send this form to your vendors and also file it with the IRS at the end of the year.

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Who receives a 1099?

You need to send a Form 1099 to vendors if your business paid them more than $600 during the year and they fall into specific categories. It's a good idea to calculate the total payments in January once all transactions for the year are settled. Here are some common categories for which you may need to file a 1099:

• Freelancers or independent contractors classified as individuals, sole proprietors, or single-member LLCs should receive a 1099. This category may include include consultants, designers, and paid influencers. 
• Partnerships or an LLC that files as a partnership should also receive a 1099. 
• Regardless of their tax classification, all law firms must receive a 1099, even if they are classified as corporations or LLCs that file as corporations.

Exceptions to filing 1099s

While most nonemployees and vendors should receive a 1099, there are a few exceptions:

• You don’t need to file 1099s for W9 employees. 
• You don’t need to file for vendors classified as non-profits, government agencies, public utilities, insurance carriers, and foreign entities. 
• You don't need to file for S corporations and C corporations unless they meet the requirements mentioned earlier.  

What type of 1099 does a vendor receive?

There are 17 different kinds of 1099 forms, but the ones most relevant to startups are 1099-NEC and 1099-MISC. Here's a breakdown of these forms and their uses:

• 1099-NEC: This form is used to report nonemployee compensation paid to independent contractors, freelancers, sole proprietors, and self-employed individuals. If you've paid a vendor more than $600 during the year, you'll typically use this form. Examples of payments that require a 1099-NEC include contract payments, fees, and service charges paid to nonemployees.
• 1099-MISC: This form is used to report miscellaneous payments that aren't covered by the 1099-NEC. Payments must be at least $10 for royalties and at least $600 for categories like rent, prizes and awards, medical and healthcare payments, and attorney settlement payments.

Some startups may also need to report payments made through third-party networks like PayPal, which can be more complex and often requires professional guidance.

How can startups prepare throughout the year?

The 1099 process can be tedious, but getting organized early and staying on track throughout the year will put you in better shape for tax season.

• Designate a 1099 point of contact or team that oversees the 1099 review and filing process.
• Establish a 1099 process and ensure everyone on the team follows the necessary procedures.
• Obtain W-9’s at the beginning of the vendor relationship.
• Utilize payment systems like BILL to store vendor tax ID numbers and W-9 forms.
• Complete a partial-year review of payments to contractors and vendors by the end of September to ensure you have the necessary W9s and tax IDs. If you use a payment system for most of your payments, don’t forget to check for payments made from your bank account. 
• After the initial review, review every month moving forward. Contact contractors and vendors to obtain missing W9s during each review round. That will make the final review and filing in January much easier. 
• And finally, start the 1099 review process early. The end of the year is a busy time with holidays and year-end close so you want to leave yourself plenty of time.

Can you use your payroll provider for 1099s? 

Many payroll providers like Gusto, Justworks, and Rippling file 1099s for contractors that were paid through their platform. But they don’t include outside payments, like those made via wire transfer or payment processors. That’s why it’s important to do your own calculations to be sure you’re reporting the right numbers. 

When are 1099s due?

Key dates are below but it’s best to check IRS.gov for the most up-to-date information and 1099 form instructions. 

• Form 1099-NEC must be sent to vendors and filed with the IRS by January 31, 2025.
• Form 1099-MISC must be sent to vendors by January 31, 2025 and electronically filled with the IRS by March 31, 2025. If filing on paper, the deadline is February 28, 2025.

How Furey can help

At Furey, we know how crucial it is to maintain clean and accurate records. Our comprehensive accounting and Accounts Payable (AP) processes are designed to help your business get 1099-ready, whether you choose to handle the filing yourself or take advantage of our 1099 service.

Here’s how our exclusive 1099 service, available to all Furey clients, can simplify your filing experience:

• Payment review: We meticulously review your payments to determine which vendors need a 1099.
• 1099 Tool: Our tool integrates payments across various channels, automatically generating the necessary vendor and payment information.
• Filing: We send digital and hard copies of the 1099s to your vendors and e-file with the IRS through Track1099.‍
• Ongoing support: After filing, we monitor and assist in resolving any errors that may arise.

This article is for informational purposes only, and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, or accounting advisors before engaging in any transaction.