What Is IRS Form 1099 and When to File It for Your U.S. Startup?

Understanding Form 1099

Form 1099 is an information return used to report certain types of non-employee payments to the IRS. The most common version that startups file is Form 1099-NEC, which covers payments made to independent contractors, consultants, and other non-payroll vendors.

In simple terms, if your startup paid someone who is not on your payroll, and the payment meets a specific threshold, you likely need to file this form.

Who Must File Form 1099?

Any U.S. business, including startups, must file Form 1099 if it meets the following conditions:

• The payment was made for business purposes
• The payee is not your employee
• The total payments to that individual or entity were $600 or more in a calendar year
• The payment was made to an individual, partnership, or LLC.
• Single-member LLCs are typically treated as sole proprietors unless elected otherwise. If the LLC is taxed as a corporation, it’s exempt.

However, not all corporations are exempt. For example, payments to incorporated law firms (even if they’re C-Corps or S-Corps) must still be reported on Form 1099-NEC. Always verify the vendor’s W-9 form to determine the correct filing requirement.

For example, if you hired a freelance designer and paid them $1,200 over the year, you are required to issue them a Form 1099-NEC and also file it with the IRS.

Types of Payments That Require a 1099

Independent Contractor Payments

If you paid a freelancer, developer, designer, or consultant who is not on your payroll, and the total is $600 or more in a year, you need to file a Form 1099.

Professional Services

Payments to professionals like lawyers, accountants, or business consultants must be reported, even if they only worked with you once.

Unincorporated Vendors

If you hired a vendor or service provider who operates as a sole proprietor or partnership, their payments are usually reportable on Form 1099.

Rent Payments

If your startup paid rent to a landlord who is an individual or a partnership, not a corporation, you must include that in your 1099 filings.

Royalties

Any royalty payments of $10 or more to individuals or businesses must be reported using Form 1099.

Commissions

Commissions paid to people who are not your employees (like sales agents) are also reportable once they cross the $600 mark.

Prizes and Awards

If you give out prize money, awards, or gifts that are not part of regular employment compensation, these must be reported as well.

NOTE: Payments made using credit cards or apps like PayPal, Stripe, or Venmo don’t go on Form 1099-NEC. The payment processor will handle reporting those under Form 1099-K.

When Is Form 1099 Due?

The IRS requires businesses to meet two important deadlines, and both fall on the same date, January 31:

• Send Form 1099-NEC to the contractor or vendor

• File Form 1099-NEC with the IRS (either by paper or electronically)

The reason both deadlines are the same is to reduce errors, avoid delays, and prevent fraud. This change helps the IRS match what contractors report as income with what businesses report as payments all in real time.

Missing these deadlines can lead to penalties ranging from $60 to $310 per form, depending on how late you file.

Common Mistakes Startups Make

Forgetting to Collect W-9 Forms

Before making any payment to a vendor, collect a Form W-9 from them. This gives you their legal name, address, and Taxpayer Identification Number (TIN), which you’ll need for the 1099.

Not Tracking Payments Properly

Use your accounting software to flag contractors who may cross the $600 threshold. Waiting until January to check all records manually can lead to missed filings or rushed errors.

Assuming All Vendors Are Exempt

Many startups think they don’t need to issue a 1099 if someone has a company name. But if that vendor is a single-member LLC or partnership, you still need to file.

What Happens If You Don’t File?

Failing to file Form 1099 can lead to:

• Penalties from the IRS

• Withholding obligations if TINs are missing

• Increased audit risk

• Damaged reputation with contractors who rely on these forms to file their own taxes

If you discover the mistake early, you can still file late and reduce the penalty amount. But repeated failures can lead to larger fines and even disqualification from certain federal benefits or contracts.

How Startups Should Stay Compliant

Track Payments Throughout the Year

Maintain clean records of how much you paid to each vendor. Accounting tools like QuickBooks, Xero, or Zoho Books can automate this tracking.

Collect and Store W-9 Forms

Always ask for a W-9 before making any payment to a new vendor. This should become a standard part of your onboarding checklist.

Plan for January Filing

Don’t wait until the deadline. Set a reminder in early January to finalize your vendor list and start preparing Form 1099s.

Use IRS-Approved E-Filing Services

Use platforms like Tax1099, Track1099, or your payroll software to file electronically. These services ensure you meet the deadline and reduce manual errors.

Download our free 1099 Compliance Checklist 

Foreign Vendors and Form 1099

If your startup pays vendors outside the U.S., the rules are different. Typically, you do not file Form 1099 for payments made to foreign vendors unless the work was performed within the U.S.

However, you may need to collect Form W-8BEN or W-8BEN-E to prove the payee’s foreign status. If you’re unsure, consult a tax advisor.

Need Help Handling Your Startup’s 1099 Filing?

[Schedule a free consultation today]

At LedgersCFO, we support startups and founders with all aspects of U.S. tax compliance, including Form 1099 preparation and filing. We help you identify who qualifies, track payments properly, and file accurate forms on time.

Our team coordinates with your internal finance or CPA firm and takes care of vendor outreach, W-9 collection, and e-filing. We make the process simple, fast, and mistake-free, so you can focus on building your business.

FAQs

1. What is IRS Form 1099 used for?

Form 1099 is used to report payments made to non-employees such as independent contractors, freelancers, and unincorporated vendors. It helps the IRS track income that isn’t reported through payroll.

2. Do I need to file a 1099 for international contractors?

Usually no, unless the contractor performed work physically inside the U.S. In most cases, you must collect a W-8 form instead to confirm your foreign status.

3. What’s the minimum payment amount to trigger a 1099 filing?

If you pay a vendor or contractor $600 or more during the calendar year, and they are not a corporation, you typically must file Form 1099-NEC.

4. What happens if I forget to file Form 1099?

You may face penalties from $60 to over $300 per missed form, depending on how late you file. It can also lead to IRS notices or audits.

5. How does LedgersCFO help with Form 1099 compliance?

LedgersCFO helps startups file Form 1099 correctly and on time. We collect W-9s, identify eligible vendors, prepare the forms, and handle IRS submissions, so you stay fully compliant without the stress.