When & How to file a Form 1099

If you run an e-commerce business, you’re probably familiar with hiring outside help like ad agencies, influencers, and other contractors. But when it comes to tax forms, things can get a bit tricky. Don’t worry, we’re here to help!

In this guide, we’ll explain the most common IRS Forms 1099 that e-commerce businesses need to know about:

1. Form 1099-NEC
2. Form 1099-MISC
3. Form 1099-INT
4. Form 1099-DIV

These forms are important if your business works with contractors, pays for professional services, gives commissions to non-employees, or pays rent, royalties, interest, or dividends. Let’s dive into the details, starting with the most common form, the 1099-NEC.

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What Types of Form 1099s Do You Need to File?

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Form 1099-NEC

What is Form 1099-NEC?

Form 1099-NEC is used to report service payments to the IRS for non-employee compensation, like independent contractors, marketing agencies, influencers, etc., if specific conditions are met.

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Who Needs to File a Form 1099-NEC?

All businesses must file a Form 1099-NEC for non-employee compensation if the following conditions are met:

• A payment is made to someone who isn't your employee (i.e., someone who is not on your payroll);
• A payment is made for services related to your business; and
• The payments made to the contractor were $600 or more for the year.

You must also file Form 1099-NEC if you withheld federal income taxes under the backup withholding tax rules for any 1099-NEC contractor, even if the amount paid is less than $600. The backup withholding tax rules generally apply if you don't receive the required documentation (Form W-9) from the contractor. For more details, see 'When and How Can You File Form 1099-NEC' below.

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What are the Exceptions to Filing Form 1099-NEC?

Some payments don't have to be reported on Form 1099-NEC even though the payments may be taxable to the contractor who receives them.

A Form 1099-NEC is not required for to be issued for:

• Payments to a corporation (company name ends with 'Inc.' or a company that's taxed as a C corporation or as an S corporation). Law firms are an exception to this rule and do require a 1099-NEC even if they're taxed as a corporation;
• Wages paid to employees through a payroll provider (report the wages on Form W-2 Wage and Tax Statement);
• Payments made with a credit card, debit card, payment card or a third-party payment settlement entity such as PayPal, Stripe, etc. The third-party payment settlement entity is responsible to report eligible transactions on Form 1099-K and are not subject to reporting on Form 1099-NEC (*see important note below);
• Payments made through money transfer entities such as Venmo and Cash App. However, payments made through Zelle, Wise, Payoneer, or Bill.com will likely require a 1099-NEC.
• Payments made to suppliers for goods (i.e., inventory and supplies), freight, storage, or similar. 
• Payments made to foreign service providers who perform the services outside of the US.
• To the extent you paid contractors through payroll platforms such as Gusto or Wave, you can exclude these payments since the relevant platform should prepare the 1099s for you. It's always best to confirm submission of the 1099s with your payroll platform. 

Form 1099-NEC shouldn't be used to report personal payments - only use it for payments related to your trade or business.

*Important note: If you pay a contractor using the family and friends option on PayPal, Venmo, or a similar payment platform, a 1099-NEC will be required to be issued. This is because the family and friends payment option is for personal payments and is not meant for business payments. Therefore, these payment platforms do not include those payments in their reporting to the IRS.

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When and How Can You File Form 1099-NEC?

In order for you to file a Form 1099-NEC for your service providers and contractors, you'll need to collect Form W-9 (Request for Taxpayer Identification Number) from each of them.

If a 1099-NEC contractor doesn't provide you with a W9, you may be required to withhold tax for future payments to that contractor. Therefore, the best practice is to collect W-9s before the first payment is made to a contractor to prevent this withholding requirement from applying.

After you have this information, Form 1099-NEC can be filed electronically with the IRS or can be mailed into the appropriate IRS Service Center by January 31 each year. Make sure to file these forms on time since late filing can result in penalties.

If you can't meet the deadlines, you can ask for an extension - do this by submitting Form 8809.

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Form 1099-MISC

What is Form 1099-MISC?

Form 1099-MISC is a form to report various different types of payments of $600 or more that you paid throughout the year. Specifically, it applies for certain payments that are not non-employee compensation paid to an individual or a company that isn't a corporation.

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Who Needs to File a Form 1099-MISC?

You may need to file a Form 1099-MISC if you made specific types of payments throughout the year that are covered by this form. Some of the most common types of payments covered include certain rental payments and royalty payments.

For this purpose, rental payments include payments of $600 or more made during the year, including rent or lease of real estate, such as office rent, or rent of personal property, like a car lease.

Royalty payments include payments of $10 or more made during the year.

Additional, less common, payments that may apply to ecommerce businesses include payments of $600 or more for:

• Prizes and awards,
• Other income payments (includes more uncommon types of income payments such as punitive damages),
• Certain payments to attorneys such as settlement payments (note that payments to attorneys for legal services are included on Form 1099-NEC and not Form 1099-MISC),
• Certain medical and health care payments, or
• Non-qualified deferred compensation.

A Form 1099-MISC may also be required for income of $5,000 or more from sales of consumer goods to a buyer in a commission type arrangement.

You must also file Form 1099-MISC if you withheld federal income taxes under the backup withholding tax rules, even if the amount paid is less than $600. As mentioned above, the backup withholding tax rules generally apply if you don't receive the required documentation (Form W-9) from the recipient of the payments.

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What are the Exceptions to Filing Form 1099-MISC?

The following payments do not require a Form 1099-MISC:

• Payments to a corporation (company name ends with 'Inc.' or a company that's taxed as a C corporation or as an S corporation). Payments to law firms for settlement payments or specific other payments, and medical and healthcare payments are an exception to this rule and do require a 1099-MISC even if they're taxed as a corporation.
• Payments made with a credit card, debit card, payment card or a third-party payment settlement entity such as PayPal, Stripe, etc. The third-party payment settlement entity is responsible to report eligible transactions on Form 1099-K and are not subject to reporting on Form 1099-MISC (*see important note below).
• Payments made through money transfer entities such as Venmo and Cash App. However, payments made through Zelle, Wise, Payoneer, or Bill.com will likely require a 1099-MISC.

*Important note: If you pay a vendor using the family and friends option on PayPal, Venmo, or a similar payment platform, a 1099-MISC will be required to be issued. This is because the family and friends payment option is for personal payments and not meant for business payments. Therefore, these payment platforms do not include those payments in their reporting to the IRS.

When and How Can You File Form 1099-MISC?

In order for you to file a Form 1099-MISC you'll need to collect the Form W-9 (Request for Taxpayer Identification Number) from the recipient of the payment.

After you have this information, Form 1099-MISC can be filed electronically with the IRS by March 31, or can be mailed into the appropriate IRS Service Center by February 28 each year. Whether e-filed or mailed, you'll need to provide a copy to the recipient by January 31. Failure to file these forms on time can result in penalties.

If you can't meet the deadlines, it's best to ask for an extension by submitting Form 8809.

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Other Form 1099s

In addition to the 1099-NEC and 1099-MISC, there are some additional, less common forms that some ecommerce businesses may need to file if they paid interest or dividends:

• 1099-INT, Interest Payments: This form is used to report interest payments of $600 or more and must be filed by the payor of the interest. Interest paid to financial institutions or corporations is excluded from this form.
• 1099-DIV, Dividends and Distributions: This form is used by C corporations to report the payment of dividends and other less common distributions (for example, distributions made as part of the liquidation of a corporation) of $10 or more to shareholders. This form is filed by the corporation that paid the dividend or distribution and is sent to the shareholders and to the IRS.

Note that S corporations that were previously taxed as C corporations may also need to file Form 1099-DIV for certain types of distributions.

Finally, here is a list of additional 1099 forms that exist but, in our experience, rarely need to be filed by ecommerce companies:

• 1099-A, Acquisition or Abandonment of Secured Property: This form applies if you lend money related to your business, use the borrower’s property to secure your loaned money, and acquire the property to satisfy the debt part of the lending agreement or acquire the property due to abandonment.
• 1099-B, Proceeds From Broker and Barter Exchange Transactions: This form applies to broker or barter exchanges who report certain transactions, including stock sales for cash and property or service exchanges through a barter exchange.
• 1099-CAP, Changes in Corporate Control and Capital Structure: This form is provided to shareholders and contains information on corporate control and capital structure changes.
• 1099-PATR, Taxable Distributions Received From Cooperatives: This form is used to report distributions received from a cooperative that may be taxable.
• 1099-OID, Original Issue Discount: This form is used to report the taxable portion of the original issue discount (typically related to bonds).
• 1099-S: This form is used to report the sale or exchange of real estate.

Word to the wise - some states are covered by the Form 1099 filed with the IRS, while others require a separate form to be filed. Make sure to check your state filing requirements for 1099 forms. Florida, Nevada, New York, Texas, and Washington, may not require additional forms to be filed since the IRS forwards them the relevant electronically filed forms.

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About Finaloop

We are a technology company providing automated end-to-end accounting service to eCommerce businesses. Our system connects to your apps, syncs all your data, and reconciles your books in real-time, replacing your bookkeeper. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.

^{*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*}