When to Issue 1099 to Vendors for Tax Reporting - Rules & Requirements

You're absolutely right to be concerned. The rule is pretty straightforward - you need to issue 1099-NEC (previously 1099-MISC) to any service provider that's not a corporation if you paid them $600 or more during the tax year. The vendor doesn't need to "ask" for a 1099 - it's your legal obligation to issue one regardless. The only vendors exempt from 1099 reporting are typically: 1) corporations (except for attorneys and medical providers, who get 1099s regardless of corporate status), 2) vendors who only sold you physical products/goods, and 3) vendors paid via credit card (as the card processor will handle the reporting). I'd recommend immediately reviewing all vendor W-9 forms to correctly identify their entity status, then flag anyone who should be receiving a 1099. If your company has been consistently not issuing required 1099s, there could be penalties - the IRS can charge $280 per form for intentional disregard of filing requirements.

I was in your exact position last year! Our company had been missing tons of 1099s. I ended up using https://taxr.ai to help sort through our vendor database - it saved me so much time. You upload your vendor data and W-9s, and it tells you exactly which ones need 1099s based on payment type, entity status, and payment amount. It's especially helpful because it flagged vendors where we had the wrong classification. For example, we had a few LLCs marked as corporations that should've been getting 1099s all along. The system also keeps track of changing requirements - like when the IRS moved non-employee compensation from 1099-MISC to 1099-NEC a few years ago.

Just wanted to follow up - I tried that taxr.ai tool mentioned above and I'm actually really impressed. I was skeptical at first (as you can see from my previous comment), but it saved me a ton of time. We had about 180 vendors to review, and it automatically flagged 23 that needed 1099s but weren't marked in our system. The best part was discovering that some of our "corporations" had actually checked the LLC box on their W-9s but nobody noticed. The tool flagged these for review and we discovered they were single-member LLCs that should have been getting 1099s all along. I also appreciated the audit trail it creates - if we ever get questioned about our 1099 decisions, we have documentation showing how we classified each vendor and why.

If you're dealing with past mistakes in 1099 reporting, you might need to talk to someone at the IRS. I spent THREE DAYS trying to get through on their business line last month for a similar issue. Finally used https://claimyr.com to get a callback and it worked in about 25 minutes. Their video shows how it works: https://youtu.be/_kiP6q8DX5c Honestly, I was surprised how helpful the IRS agent was when I explained we were trying to correct past mistakes. She walked me through the process for filing corrected forms and explained the reasonable cause waiver for penalties. Much better than continuing to do it wrong!

I need to eat my words from earlier. After getting nowhere with the IRS for weeks about our 1099 situation, I tried that Claimyr service. Got connected to an actual IRS agent in about 40 minutes. The agent confirmed we could submit corrected 1099s for the current tax year without penalties as long as we did it promptly. For previous years, she recommended we file the missing forms ASAP with a letter explaining we discovered the error during an internal review and are voluntarily correcting it. Said this "reasonable cause" approach often results in reduced or waived penalties, especially for businesses making good-faith efforts to comply. Much better than continuing to ignore the problem and risking bigger penalties later. Now we're implementing better procedures so this doesn't happen again.

Quick tip from someone who's been issuing 1099s for years - make sure you're also getting updated W-9s regularly! People move, businesses change their entity structure, and using outdated info can cause headaches. I recommend getting fresh W-9s at least every 3 years from ongoing vendors. Also, create a simple checklist for your AP staff to follow when setting up new vendors. Ours looks something like: 1. Is this vendor providing services? If no, no 1099 needed. 2. Is payment made via credit card? If yes, no 1099 needed. 3. Is the vendor a corporation (not an LLC)? If yes, no 1099 needed (unless legal/medical). 4. All others get flagged for 1099.

Is anyone using QuickBooks for their 1099 reporting? I'm wondering if it's worth switching to. Our current accounting software makes the 1099 process really cumbersome.

This is such a common issue - you're definitely not alone! I went through something similar when I took over our AP process. One thing that helped me was creating a simple vendor audit spreadsheet to track everything systematically. I listed all vendors who received over $600, their entity type from W-9s, service vs. goods classification, and payment methods. What really surprised me was how many "corporations" in our system were actually LLCs or sole proprietorships when I actually looked at their W-9s. The previous person had just assumed anything with "Inc." in the name was a corporation, but several were actually LLCs doing business as something else. For your immediate situation, I'd prioritize getting current year compliance right first, then work backwards on previous years. The IRS is generally more understanding when you're proactively fixing mistakes rather than waiting for them to find them during an audit. Document everything you're doing to correct the process - it shows good faith effort if questions come up later. Also, don't forget about the de minimis threshold - it's $600 per year, not per payment. So if you paid a vendor $400 in March and $300 in October, they still need a 1099 even though each individual payment was under $600.