The 1099 process in accounts payable runs on four moving parts: identifying which vendors are reportable, collecting and verifying their tax information, tracking payments against the $600 threshold throughout the year, and filing the right form with the IRS and the vendor by the right deadline. Miss any of those, and the penalties come per form, not per filing. AP owns this work because AP owns the payment data, the vendor master file, and the W-9s that make everything else possible.
Which Vendors Need a 1099
Two questions decide whether a vendor is reportable: how much you paid, and what kind of entity they are. Payments of $600 or more made in the course of your trade or business to another person trigger a reporting requirement for most types of income, including fees, commissions, rent, and royalties.1eCFR. 26 CFR 1.6041-1 – Return of Information as to Payments of $600 or More
Which form you use depends on what you paid for. Form 1099-NEC covers nonemployee compensation: fees, commissions, and other payments to independent contractors for services.2Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Form 1099-MISC handles rent, royalties, gross proceeds paid to attorneys, and other miscellaneous categories.3Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information
Entity type matters more than most AP teams realize. Payments to individuals, sole proprietors, and partnerships are generally reportable when they hit the $600 mark. Single-member LLCs that haven’t elected corporate tax treatment are reportable too, because the IRS treats them as disregarded entities. Corporations are the main exemption. Payments to C-corporations and S-corporations are typically excluded, with one important exception: payments to attorneys are always reportable, even when the law firm is incorporated.1eCFR. 26 CFR 1.6041-1 – Return of Information as to Payments of $600 or More Get the classification right at onboarding and the year-end filing sorts itself out. Get it wrong, and you’ll be reconstructing entity status for a hundred vendors in January.
Collecting W-9s Before the First Payment
The single most useful habit an AP department can build is collecting a completed Form W-9 from every new vendor before releasing the first payment. The W-9 supplies the legal name, the Taxpayer Identification Number, the mailing address, and the federal tax classification.4Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification That classification box is what tells you whether the vendor is 1099-reportable at all.
The vendor signs the W-9 under penalties of perjury, certifying that the TIN is correct, that they are not subject to backup withholding (or are exempt), and that they are a U.S. person.5Internal Revenue Service. Form W-9 (Rev. March 2024) That signature shifts some liability to the vendor if the information turns out to be wrong. Keep the signed forms. An auditor’s first question is whether you have them.
Verifying TINs With the IRS Matching Service
Filing a 1099 with a TIN that doesn’t match IRS records is a common and expensive mistake. The IRS offers a free TIN Matching service through its e-Services portal that lets payers verify name-and-TIN combinations before submitting information returns, either one at a time or in bulk uploads.6Internal Revenue Service. Taxpayer Identification Number (TIN) Matching Your business must be registered on the IRS Payer Account File to use it. Run matches during onboarding rather than at the filing deadline, so mismatches can be resolved without delaying the return.
When a Vendor Won’t Provide a TIN
If a vendor won’t hand over a W-9, or provides an obviously invalid TIN (too few digits, too many, letters mixed in), you are required to begin backup withholding. That means deducting 24% from each payment and remitting it to the IRS.7Internal Revenue Service. Backup Withholding Backup withholding is a tax, not a penalty for the vendor, but most vendors produce a W-9 quickly once they see 24% coming off their invoice.
Backup withholding amounts get reported on Form 945, the annual return for withheld federal income tax on nonpayroll payments. For tax year 2025, Form 945 is due by February 2, 2026, though businesses that deposited all taxes on time may file as late as February 10.8Internal Revenue Service. Instructions for Form 945 (2025)
Tracking Payments Through the Year
Year-end 1099 preparation is only as clean as the payment data collected all year. Flag each vendor as 1099-eligible in the accounting system the moment the W-9 arrives. Most modern platforms have a toggle on the vendor profile. Once a vendor is flagged, every payment posted against that profile feeds a running total the system can pull at filing time.
The $600 threshold catches people because no single payment has to reach it. Five $150 invoices across a year add up to $750, and that vendor now needs a 1099. Continuous tracking prevents the common mistake of overlooking small, frequent payments that quietly cross the line. Without a running total, someone in AP has to rebuild a year of transactions in January, and that’s where things get missed.
Exclude Credit Card and Payment Network Payments
One rule trips up nearly every AP team at least once: payments made by credit card, debit card, or through third-party payment networks are excluded from 1099-NEC and 1099-MISC reporting. The IRS instructions state that these payments must be reported on Form 1099-K by the payment settlement entity, not by you.2Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Pay a contractor $8,000 during the year, $5,000 by check and $3,000 by credit card, and only the $5,000 goes on the 1099-NEC.
The 1099-K threshold sits at more than $20,000 in gross payments and more than 200 transactions, restored to the pre-2021 level under the One, Big, Beautiful Bill.9Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill That threshold governs whether the card company or network files a 1099-K to the vendor. It does not change your obligation: if you paid by card, you still exclude the amount from your 1099-NEC or 1099-MISC, whether or not the vendor actually receives a 1099-K.
Filing Deadlines
The two main forms have different deadlines, and confusing them is a penalty waiting to happen.
- Form 1099-NEC is due to the IRS by January 31 of the year following the payment. There is no automatic extension.2Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
- Form 1099-MISC is due February 28 on paper, or March 31 electronically.
The IRS requires electronic filing when you submit 10 or more information returns in a year, counting all types of returns across all forms combined (1099-NEC, 1099-MISC, W-2, and others).10Internal Revenue Service. E-File Information Returns A mid-sized company with a handful of contractors, a few landlords, and a couple of legal vendors hits that count easily.
Two IRS channels handle e-filing. The Information Returns Intake System (IRIS) is the newer option, with a free Taxpayer Portal for direct filing and an application-to-application channel for software integration.11Internal Revenue Service. E-File Information Returns with IRIS The older Filing Information Returns Electronically (FIRE) system requires third-party software. Either way, keep the confirmation of receipt as proof of timely filing.
Delivering Copies to Vendors
Filing with the IRS is half the job. You must also furnish Copy B of each 1099 to the recipient. For 1099-NEC, the recipient deadline is the same as the IRS deadline: January 31. Delivery can be by mail or electronic, but electronic delivery requires the vendor’s affirmative consent in advance. A vendor who hasn’t opted in must receive paper. The electronic statement must stay accessible to the recipient on a website from the January 31 due date through October 15 of that year.
Getting electronic delivery consent during onboarding saves postage and processing, but the consent must be genuine. Adding a clause to a standard vendor agreement and treating silence as consent doesn’t meet the requirement. If a vendor later withdraws consent, all future statements to that vendor revert to paper.
Penalties for Late or Incorrect Filing
The IRS charges penalties per form, so a business with dozens of reportable vendors can rack up substantial amounts quickly. For returns due in 2026:12Internal Revenue Service. Internal Revenue Manual 20.1.7 – Information Return Penalties
- Filed within 30 days of the deadline: $60 per form.
- Filed after 30 days but by August 1: $130 per form.
- Filed after August 1 or not filed at all: $340 per form.
- Intentional disregard: $680 per form, with no annual cap.
These amounts apply separately to the return you file with the IRS and to the statement you furnish to the recipient. Annual caps apply for the first three tiers, with lower caps for small businesses (average annual gross receipts of $5 million or less) and higher caps for larger businesses. Intentional disregard has no ceiling, which is the IRS’s way of signaling that deliberately skipping filings is treated far more seriously than falling behind.
Reasonable-cause relief is available if you can show you acted responsibly both before and after the failure: requesting extensions where possible, fixing issues promptly, and correcting errors once discovered. First-time filers and businesses with a clean compliance history have the best shot at abatement. Requests go in by phone using the number on the penalty notice, or in writing on Form 843.13Internal Revenue Service. Penalty Relief for Reasonable Cause
Correcting Errors After Filing
Transposed TINs, wrong amounts, wrong form type: they happen. There’s no fixed deadline for corrections, but the late-filing penalty tiers keep ratcheting, so speed matters. The IRS divides corrections into two types:14Internal Revenue Service. General Instructions for Certain Information Returns (2025)
- Type 1, for a wrong dollar amount, code, or checkbox: prepare a new return with the “CORRECTED” box checked, enter the correct amounts, and file it with a new Form 1096. Leave all other information the same as the original.
- Type 2, for a wrong TIN, wrong name, or wrong form type: this is a two-step process. First, file a corrected return that repeats the original incorrect information with all money amounts set to zero. Then file a brand-new return with the correct information, without checking the “CORRECTED” box, because the IRS treats it as a fresh filing.
Type 2 is where AP teams most often stumble. The two-step process feels counterintuitive, but the IRS needs to match and remove the incorrect record before accepting the correct one. If you e-filed the original through IRIS, the correction can go through the same system.
Responding to CP2100 and B-Notices
After filing, the IRS compares the name-and-TIN combinations on your returns against its records. Discrepancies come back as a CP2100 or CP2100A notice. Your response depends on whether it’s the first or second time a particular vendor has appeared on these notices.
For a first-time mismatch, send the vendor a First B-Notice with a blank Form W-9 and request corrected information. If the same vendor shows up on a CP2100 or CP2100A notice again within three years, send a Second B-Notice and begin backup withholding at 24% on all future payments to that vendor until the issue is resolved.15Internal Revenue Service. Backup Withholding “B” Program The IRS expects payers to make up to three solicitation attempts for a correct TIN. Ignoring the notices escalates the penalties and shifts liability to your business.
State Filing Obligations
Federal filing is only part of the picture. Most states have their own information return requirements, and missing them generates a separate set of penalties. The IRS runs a voluntary Combined Federal/State Filing Program that forwards electronically filed returns to participating state revenue departments at no additional charge.16Internal Revenue Service. Combined Federal/State Filing (CF/SF) Program Not all states participate, and some participating states still require separate notification that you’re filing through the federal program. The IRS acts only as a forwarding agent and takes no responsibility for whether the state received or accepted the data. Confirming with each state revenue department is on you. Several states also require separate reporting of independent contractor engagements to a state agency, often tied to child support enforcement, on their own timelines and thresholds.
What to Keep
Retain copies of every filed 1099, every Form 1096 transmittal, every signed W-9, and the payment detail supporting each return. IRS general guidance is to keep records for at least three years from the filing date. Four years aligns with the statute of limitations for employment tax records and gives extra protection. If any underreporting is suspected, retention extends to six years. Digital storage is fine as long as the records stay retrievable and legible.