Your Annual Reminder to File Worker 1099s
This is our annual reminder that if you use workers other than employees to perform services for your business and pay them $600 or more for 2025, you are required to issue each one a Form 1099-NEC after the end of the year to avoid facing penalties and the potential loss of the deduction for their labor and expenses.
Filing Due Date: The 1099s for 2025 must be provided to workers and filed with the IRS no later than February 2, 2026. Normally the due date is January 31, but since it falls on the weekend, the due date is extended to the next business day, which is February 2, 2026.
Landlords: The requirement to file Form 1099-NEC may also apply to landlords considering the 20% pass-through deduction (Sec. 199A deduction) for business income. The IRS, in regulations for this tax code section, cautions landlords that to be treated as a trade or business (and therefore to generally be eligible for the 199A deduction), they should consider reporting payments to independent contractor service providers on IRS Form 1099-NEC. This generally wasn’t required for rental activities in the past and still isn’t required when a rental is classified as an investment rather than as a trade or business.
Additional Filing Requirements: Although not commonplace, Form 1099-NEC filing is also required in the following situations:
File Form 1099-NEC or Form 1099-MISC to report sales totaling $5,000 or more of consumer products to a person on a buy-sell, a deposit-commission, or other commission basis for resale.
Also file Form 1099-NEC for each person from whom federal income tax has been withheld under the backup withholding rules regardless of the amount of the payment (report in box 4).
Form W-9: It is not uncommon to, say, have a repairman out early in the year, pay them less than $600, and then use their services again later and have the total for the year exceed the $600 limit. As a result, you could easily overlook getting the necessary information, such as their complete name and tax identification number (TIN), to file the 1099s for the year. Therefore, it is good practice to have unincorporated individuals complete and sign the IRS Form W-9 the first time you use their services, whether or not the initial payment exceeds the 1099 filing threshold. Having properly completed and signed Form W-9s for all independent contractors and service providers eliminates oversights and protects you against IRS penalties, potential loss of the business deduction and conflicts.
The government provides IRS Form W-9 as a means for you to obtain the data required to file 1099s for your vendors, contractors or service providers. This data includes the individual’s name, address, type of business entity and TIN (usually a Social Security number or an Employer Identification Number) as well as certifications of the ID number and citizenship status. It also provides verification that you complied with the law should the individual provide you with incorrect information. We highly recommend that you have potential vendors, contractors, etc., complete Form W-9 prior to engaging in business with them. The form can either be printed to fill out or completed onscreen and then printed. A Spanish-language version is also available. The W-9 is for your use only and is not submitted to the IRS. The W-9 was last revised by the IRS in March 2024, so if you previously printed out blank W-9s of an earlier version to give to your vendors, you may want to print copies of the latest version (including the instructions) and discard the older unused forms.
Household Workers: 1099-NEC worker reporting does not apply to household workers, as they are considered employees. Call for additional information.
Penalties: If a business does not submit a Form 1099-NEC or Form 1099-MISC by the specified date, penalties range from $60 to $340 per form for filings within the 2026 tax year (1099-NECs for 2025), influenced by the lateness of the submission. In cases where a business willfully ignores the obligation to accurately provide a Form 1099-NEC or Form 1099-MISC, they face a minimum penalty of $680 per form or 10% of the income stated on the form for the 2025 tax year, with no upper limit.
Endeavors to Mitigate Penalties: Have the contractor complete a Form W-9, Request for Taxpayer Identification Number and Certification, when they are initially hired. If that was not done, the following actions may help to mitigate penalties:
Conduct Multiple Solicitations: Make up to three efforts to obtain the TIN from the payee, proving reasonable attempts were made. Document all attempts through email, certified mail, or text messages.
Initiate Backup Withholding: If the contractor fails to provide their TIN, start backup withholding at a 24% rate on any subsequent reportable payments and send this to the IRS.
Submit the 1099-NEC by Paper: If the TIN is still not received by the filing deadline, submit a paper Form 1099-NEC and write "Refused" in the section designated for the TIN.
Reply to IRS notices: The IRS may inquire about the missing TIN. You should respond promptly with proof of your attempts to obtain the TIN.
Consequences of non-compliance: If filing requirements are intentionally ignored, such as not collecting a TIN, substantial penalties could be imposed ($660 per form for the 2025 tax year), without a maximum cap. Following these procedures is essential in reducing penalties.
State Filings: State filing deadlines may vary. Some states participate in the Combined Federal/State Filing program, while others require direct filing.
E-File Mandate: The threshold for the e-file mandate requires filers to electronically submit returns if they file 10 or more returns in a calendar year. This threshold is determined by aggregating various types of returns, rather than having separate limits for each return type as was previously the case.
Paper Filed 1099-NECs: If a business is not subject to the e-file mandate, 1099-NECs can be paper filed, but onspecial optically scannable forms.
Preparing For Next Year: The reporting threshold for independent contractors paid during the 2026 tax year has been increased to $2,000 by the One Big Beautiful Bill Act. But make sure W-9s are collected from all independent contractors even though the threshold is higher than it’s been in the past.
If you need assistance with filing 1099-NEC or have questions related to this issue, please give this office a call. You can complete the 1099-NEC worksheet and forward it to this firm to prepare 1099s.
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