The 411 on 1099s: What RIA Owners Need to Know

What is a 1099, and why is it important? 

While much mystery surrounds the topic, IRS Form 1099 is simply a collection of tax forms that document various types of payments made by an individual or business to a recipient who typically doesn't employ them. There are 22 types of 1099 forms, including the 1099-MISC, the 1099-NEC, the 1099-K, and a new addition to the lineup, the 1099-DA. 

Since it generates the most questions, we'll focus on File Form 1099-NEC, Nonemployee Compensation, which reports miscellaneous payments made to non-employee individuals for services provided to your business.  

The importance of issuing 1099s lies in accurately reporting what are ultimately business expenses, leading to more favorable outcomes when it comes time to file your company's taxes. 

Who receives a 1099-NEC?

In a nutshell, any non-employee who does $2,000 or more worth of work for your company during the tax year and is paid via debit card, bank ACH, or Zelle will need to receive a 1099. Specifically:

1. Attorneys (See important exemptions to this below)
2. Vendors (defined as a federal executive agency)
3. Independent contractors who perform services and are not your employees (including parts and materials)

Some likely non-employees may include the temporary assistant you hired or the marketing freelancer you found to do a couple of hours of gig work for you. 

In Publication 15, the IRS provides guidelines for determining whether an individual is an independent contractor or a “non-employee.” Still, it comes down to a non-employee who is generally NOT subject to the business’s instructions about when, where, and how to work.

Who receives a 1099-MISC?

Most 1099s will be filed as NEC, but a few exceptions may require you to file a 1099-MISC form instead. These are miscellaneous payments totaling over $2,000 per payee that could be for:

1. Rent payments
2. Medical and Healthcare payments
3. Prizes and awards (not paid to employees)

Payments made to an attorney have an additional exception. While the payment threshold increased for other categories, gross proceeds paid to an attorney (these are payments made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement) will still need a 1099-MISC form issued if they hit $600 or more.

What is a 1099-DA?

This new 1099 form was designed to address the issues that have arisen in recent years, including inconsistent reporting and a lack of information on how to report earnings from cryptocurrencies, NFTs, and other digital assets. Previously, these earnings would have been reported on a 1099-K; however, a combination of incomplete information, inconsistent reporting, and a lack of third-party verification made it difficult for the IRS to verify the reported information.

This new 1099 form will be issued by digital asset brokers and those treated as brokers for digital asset management, with the goal of providing the IRS with more complete and accurate information regarding crypto transactions, thereby improving compliance and reducing tax evasion. 

Unlike the other 1099 forms, there is no threshold that constitutes the reception of a 1099-DA. Digital asset brokers will be required to issue this form for any transaction that results in a gain or loss, regardless of the asset's value.

What is "Nonemployee Compensation"?

Per the IRS, if the following four conditions are met, you must generally report a payment as non-employee compensation:

1. You made the payment to someone who is not your employee
2. You made the payment for services in the course of your trade or business (including government agencies and non-profit organizations)
3. You made the payment to an individual, partnership, estate, or in some cases, a corporation, and
4. You made payments to the payee of at least $2,000 during the course of the year

Do I need to issue a 1099-NEC for payments made for personal purposes?

Nope. You are only required to issue 1099-NEC forms for payments you made during your trade or business. Personal purposes don’t count. 

Are there exceptions to the 1099-NEC requirement?

Of course. This is the tax law we’re talking about.

Some payments do NOT have to be reported on Form 1099-NEC, although they may be taxable to the recipient.  Here are some of the more applicable nonemployee payment exemptions:

1. Generally, payments to a corporation, including LLCs that operate as a C or S corp (Note: You can determine/verify the business structure from the box selected in Section 3. of their W-9)
2. Wages, any bonuses, prizes, and awards paid to employees (report these on Form W-2)
3. Military differential wage payments made to employees while they are on active duty in the U.S. Armed Forces or other uniformed services (report on Form W-2)
4. Business travel allowances paid to employees (may be reportable on Form W-2)

But there’s an exception to this exemption. Remember those legal services mentioned above?  That's right; you are required to file a 1099-NEC regardless of their entity's structure (noted above as the excepted LLC, S, or C Corps)—UNLESS you pay by credit card. 

Payments made via credit card or PayPal do not necessitate filing a 1099 because the credit card processor will send a 1099-K to the individual or company at the end of the year. This means that if you paid for legal services via credit card or PayPal, you do not need to send a 1099.  (Kind of a double Reverse Uno card).  

If you fall under the category of receiving payments via credit cards or a third party (such as AdvicePay) and are expecting to receive a 1099K, there is an important update for 2026. The “Big Beautiful Bill” reinstated the higher threshold for income received through third-party platforms, so if you made at least $20,000.00 and had 200 or more transactions through a third-party payment platform, you should expect to receive a 1099k. Please note that even if you fall below this threshold and do not receive the form, you are still obligated to report all taxable income made within the 2026 tax year. 

How can I make the 1099 process easier at year-end?

There are a few things you can do to make your life easier:

1. Collect W-9s upfront from any vendor you expect to pay more than $2,000. How can you encourage vendors to provide their W-9s on time? Tell them you’ll pay them once it’s received. Vendors are also subject to a penalty of $50.00 for failure to provide a W-9 when it is requested and you will need to enforce backup withholding (24% of each payment). This will need to be remitted to the IRS and reported on Form 945.
2. But what if the vendor still does not provide a W9 form after multiple attempts?
   1. If a contractor, vendor, or other payee refuses/fails to provide their taxpayer identification number, you should still fill out and timely file your 1099 returns with a notation that the payee failed or refused to provide a W9 with their TIN.  Failure to file Form 1099 based on a person’s refusal or failure to provide that information does not excuse the business from filing all required returns
3. When doing monthly bookkeeping, record the vendor name in the payee line
4. Pay for things on a credit card
5. If you are using Quickbooks Online, we encourage you to review your vendors, hit edit on the ones that should receive 1099’s, and check the “Track for 1099s” box. This will allow you to easily pull the “1099 Transaction Detail Report” in QBO. You may need to adjust some settings in that report so all vendors can appear
6. While we do not currently offer 1099 preparations, engaging XYPN Books to perform your bookkeeping throughout the year will remove the headache when sending them to your vendors. There are few things worse than trying to do a year's worth of bookkeeping within a short timeframe to ensure you are reporting the correct numbers

When are the deadlines?

The Federal filing date for Form 1099-NEC is January 31st.  You also need to furnish a statement to the recipient by January 31st.  Check with your state to see if you have to file copies of the 1099s with them.

If you have 10 or more returns, you must file them electronically. If not, you could be subject to penalties for filing paper forms unless a waiver is requested. The IRS is updating their portal for submitting returns electronically and retiring the old FIRE (Filing Information Returns Electronically) for IRIS (Information Returns Intake System). Unfortunately, this means that businesses filing electronically must apply for a new IRIS Transmitter Control Code (TCC), which can take up to 45 days to obtain. You can find the application here. 

Important Note for 2027:

As we head into 2027, it is never too early to begin preparing for the following tax year! Moving forward, the minimum 1099 payment threshold will be increased to account for inflation. We will keep you updated as these requirements change, so be sure to check back next year!

Additional Resources

If you’re searching for more information or in need of additional guidance, review these helpful resources: 

• 1099online.com – XYPN Books has used this application to prepare 1099s. While a bit archaic, it gets the job done.
• QuickBooks 1099 E-file – Although we haven’t used this application, there will likely be efficiencies from using the same system for accounting and 1099 preparation.
• How to Determine Who Receives a 1099
  
• Publication 1099 (2026), General Instructions for Certain Information Returns
• What Happens When a Contractor or Vendor Refuses to Provide a W-9?

Didn't find your answer?

If you have any 1099 questions that we didn’t cover here or would like to know more about how XYPN Books can help you bring balance to your books and business so you can spend more time serving your clients, get in touch!

Resources consulted:
Wolny, Nick. “All 22 Types of 1099 Tax Forms, Explained.” CNET, 8 February 2023, https://www.cnet.com/personal-finance/taxes/1099-tax-forms-explained/. Accessed 4 January 2024.

https://www.wagefiling.com/what-happens-when-a-contractor-refuses-to-provide-a-w-9/

https://www.irs.gov/publications/p1099&sa=D&source=docs&ust=1794436186227572&usg=AOvVaw2QpuE90a7n6CnUpPF60Ta0 

Jocelyn Rucker

Meet Jocelyn Rucker, the self proclaimed Zena the warrior princess of bookkeeping and taxes. I believe in “rendering to God what is God’s and to Ceasar’s what is Ceasar’s,” nothing more, nothing less. I love sticking up for the small business owner, of which I have several in my family, helping them navigate the “clear as mud” tax code, legally. After all it’s not just what you earn, but what you keep & what you do with what you keep. Interested in all things finance, together with my fellow XY Bookies, we collaborate to help you do more of what you love.

Danielle Simard

From Portsmouth, New Hampshire, Dani started her bookkeeping career with XYPN books in 2021 and has grown to be the Accounting Manager. She loves to go fly fishing during the summer and when it starts to snow, she hits the ski slopes. Her favorite food is buffalo chicken pizza and her favorite book is The Alchemist, by Paul Coelho.