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Which vendors need a 1099-NEC at year end?

Anyone you paid $600 or more for services during the year who isn’t an employee generally needs a 1099-NEC. The form reports payments to independent contractors, freelancers, and other non-employee service providers so the IRS knows about income that might otherwise go unreported.

The $600 threshold applies to the total you paid that vendor across the entire year. Pay a subcontractor $400 in March and $300 in August, that’s $700 total and a 1099-NEC is required.

Corporations are the main exception. If a vendor is organized as a C-corporation or S-corporation, you don’t send them a 1099-NEC regardless of how much you paid. The one exception to this rule is attorneys. Payments to attorneys for legal services always require a 1099-NEC even if the law firm is incorporated.

Common vendors requiring 1099-NECs include subcontractors, freelance designers or marketers, IT consultants, independent accountants and bookkeepers, cleaning crews operating as sole proprietors, and anyone providing ongoing services to your business who isn’t on payroll. For construction companies and contractors in the Greater Houston area, this often means every electrician, plumber, framing crew, and specialty trade you hire. Having proper 1099 preparation processes in place becomes especially important when you’re paying dozens of subcontractors throughout the year.

Payments for products don’t require a 1099-NEC. If you buy inventory, supplies, or materials from a vendor, no form is needed. The rule applies only to payments for services.

Credit card and payment processor transactions are also excluded. If you paid a contractor through PayPal, Venmo, or a business credit card, you don’t issue a 1099-NEC. The payment processor reports those transactions on a 1099-K instead. You’re only responsible for reporting payments made by check, cash, ACH transfer, or wire.

The W-9 form is how you determine all of this. It shows you the vendor’s legal name, address, taxpayer identification number, and entity type. Without a W-9, you don’t know whether the vendor is a corporation or a sole proprietor. Collect W-9s before making the first payment, not in January when you’re scrambling to file forms and vendors aren’t returning your calls.

If you didn’t track payments properly throughout the year, bookkeeping cleanup and catch-up services can help reconstruct what you paid and to whom. Getting this right matters because the IRS matches 1099s against tax returns, and penalties apply for failing to file required forms or filing them with incorrect information.

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SRC Bookkeeping & Tax is a Woodlands-based bookkeeping and tax practice serving small businesses across Greater Houston. Founded by Shane Christenson with experience in banking, public accounting, and nonprofit finance. We help business owners keep their records organized and their taxes handled.

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