Who Gets a 1099? A Simple Checklist for Business Owners

If you are a small business owner and you have ever paid someone outside of payroll, there is a good chance you have heard the term “1099” at some point. Maybe your accountant mentioned it. Maybe a contractor asked you for one. Or maybe you are just now realizing it is something you are supposed to handle at the end of the year.

And if you are thinking, “I honestly do not even know what this is,” you are not alone.

Most business owners are not sitting around reading IRS rules for fun. You are focused on your clients, your team, your schedule, and everything else it takes to keep your business running. So when tax season rolls around and you are suddenly expected to send out forms and track contractor payments, it can feel overwhelming fast.

The good news is that 1099s are manageable once you understand the basics. This blog will walk you through who needs a 1099, who does not, and what you can do now so this never turns into a stressful scramble later.

What is a 1099 and why does it matter?

A 1099 is a tax form used to report certain payments your business makes to people who are not employees. It is basically the IRS’s way of tracking income that was earned outside of a traditional payroll job.

For most small business owners, the form that matters is Form 1099-NEC, which is used for non-employee compensation. That includes payments you made to independent contractors for services.

If you want the official IRS overview, you can reference it here: https://www.irs.gov/forms-pubs/about-form-1099-nec

This matters because sending 1099s correctly helps you stay compliant, avoid penalties, and keep your bookkeeping clean and tax-ready. It also keeps your contractor payments organized, which is important for understanding your true business profit.

The simple checklist to know who gets a 1099

If you are unsure whether someone should receive a 1099, use this checklist. You do not need to memorize every rule. You just need to walk through the questions in order.

1) Did you pay them for a service?

1099s are generally used for services. That means you paid someone to do work for your business, not just to sell you a product.

This includes things like hiring someone to support your business operations, complete client work, or help you deliver a service.

Some common examples of service providers include:

• A virtual assistant helping with admin tasks

• A marketing contractor writing content or managing ads

• A photographer doing branding photos

• A subcontractor helping complete jobs

• A consultant helping with strategy

• A bookkeeper helping you stay organized

If you paid someone because they did work for your business, move to the next step.

2) Did you pay them $600 or more total during the year?

In many cases, if you paid a contractor $600 or more over the course of the year, you generally need to issue a 1099-NEC.

This is one of the most common places business owners get caught off guard. It is not about one large invoice. It is the total amount paid across the entire year.

For example, you might pay a contractor $250 a month. That feels small month to month, but over the year that adds up to $3,000. That is when 1099 reporting becomes relevant. Even if you only worked with someone a few times, those payments can add up quickly without you realizing it.

This is why it is so important to track contractor totals throughout the year instead of trying to piece it together later.

3) Was it a business payment, not a personal one?

1099s apply to business payments. If you paid someone for something related to your business, that is the type of payment that belongs in your bookkeeping and may require reporting.

Personal payments are different, but they can easily get mixed in if you are using the same bank account or card for both business and personal spending.

If your books ever feel confusing or inconsistent, this is often one of the reasons. Separating business and personal transactions makes everything easier, including 1099s.

4) What type of business is the contractor?

This is the part that confuses most people, and honestly, it is not your fault. A lot of business owners assume that if they paid a business, they do not need to issue a 1099.

But whether a 1099 is required depends on how the contractor or vendor is set up for tax purposes.

In many cases, 1099s may apply to payments made to:

• Individuals

• Sole proprietors

• Partnerships

• Many LLCs

In some cases, corporations are treated differently. The easiest way to confirm how someone is classified is to collect a W-9 before you pay them.

This is why it is so important to collect the right information up front instead of guessing later.

Who usually does not need a 1099?

Now let’s talk about the situations where you typically do not need to issue a 1099. These are some of the most common ones we see.

Payments under $600

If you paid someone less than $600 total during the year, you generally do not need to issue a 1099.

That said, it is still important to categorize those expenses correctly. Even if no form is required, the transaction still impacts your profit and your taxes.

Product purchases and supplies

1099s are usually for services, not for buying products or materials.

For example, purchasing office supplies or inventory is not the same as paying a contractor to provide a service.

Situations where tracking is the real issue

A lot of business owners do not run into 1099 problems because they did something “wrong.” They run into problems because they do not have a clean way to track contractor payments.

This usually happens when payments are scattered across:

• Bank transfers

• Checks

• Venmo or Zelle

• Multiple cards

• Personal accounts mixed with business spending

When everything is spread out like that, it becomes harder to know who hit the $600 threshold and what should be reported. The form is not the hard part. The tracking is.

How to make 1099s easier before tax season

Most people wait until January to deal with 1099s, and that is why it becomes stressful. The easiest way to handle this is to build a simple process before year end.

Collect a W-9 before you pay contractors

A W-9 gives you the contractor’s legal name and tax information so you can file correctly. It also helps you confirm how they are classified for tax purposes.

Here is the official IRS W-9 link: https://www.irs.gov/forms-pubs/about-form-w-9

If you wait until the end of the year to request W-9s, it can turn into a lot of back-and-forth. Getting it early makes everything smoother. It also saves you from chasing people down later when they are busy or have moved on to other work.

Keep contractor payments organized in your bookkeeping

You do not need a complicated setup. You just need consistency.

At a minimum, you want to be able to see:

• Who you paid

• How much you paid them total

• What the payment was for

• How the payment was made

When your contractor payments are clean, you can quickly review totals and handle 1099s without panic.

Do a quick review before the year ends

Even one short review in November or December can save you hours later.

This gives you time to:

• Request missing W-9s

• Fix contractor categories

• Confirm totals look accurate

• Avoid last-minute surprises

It is a small step that makes a big difference.

Final Thoughts

If 1099s have been on your mental to-do list and you keep putting them off, you are not alone. Most business owners do not have time to dig into IRS forms on top of everything else they manage every day.

But 1099s do not have to be complicated. Once you understand the checklist and keep contractor payments organized, the process becomes much easier and far less stressful.

At Open Horizons Bookkeeping, we help small business owners handle things like this in a way that feels clear and manageable. A lot of people charge an insane amount for 1099 help, but we genuinely care about helping you do it right, stay compliant, and feel confident in your numbers.

If you want support getting contractor payments organized or making sure your books are tax-ready, we are here to help.