Need an easy way to pay your 1099 vendors? This post will help you simplify your 1099 vendor payments. Learn how to identify your 1099 vendors, determine whether a 1099 form is needed, and comply with federal income tax law by providing the required 1099 forms.
What is a 1099 vendor?
A 1099 vendor is a business or other organization that your company pays for services rendered—but only if those payments need to be reported on a 1099 form. That's where the name comes from—the tax form that's used to report those payments.
What qualifies as a 1099 vendor?
While the definition above is accurate, it doesn't help you figure out who your 1099 vendors are. So, which vendors qualify as 1099 vendors?
The IRS uses 1099 forms to track certain business payments to non-employees, meaning independent contractors and certain businesses that you pay for services. Why? Because those payments are taxable income to the people and businesses you're paying, but they fall outside your company's payroll. The Internal Revenue Service calls these payments non-employee compensation.
These 1099 forms generally apply to people or companies you contract with for individualized services—such as a local bakery that caters for your meetings or an individual who designs your business cards.
Given the recent surge in the gig economy, that can represent a significant portion of your vendor payments.
However, you generally don't have to file 1099 forms for things like utility bills, internet service, or digital subscriptions. You also don't have to file 1099 forms for products you buy, such as office supplies.
Is an LLC a 1099 vendor? In most cases, incorporated businesses—including most limited liability companies (LLCs) that are treated as either S-corps or C-corps—are also exempt. Most other LLCs aren't. (You can tell the difference from the W-9 form, discussed below under "1099 requirements for vendors.")
Finally, you don't need to report payments made by credit card and certain other third-party payment providers because these are reported by the payment provider on Form 1099-K.
Still, there isn't any penalty for filing a 1099 that you didn't have to file. So, if you aren't sure whether you need to file one for a specific vendor, go ahead and file it.
What's the difference between 1099 independent contractors and 1099 vendors?
Generally speaking, if you hire specific people to do something for you, those are 1099 contractors—the term is a mash-up of "independent contractor" and the 1099 form you use to report those payments. If you're hiring a business entity rather than contracting for the services of a particular individual, that's a 1099 vendor.
Either way, the payments will be reported on a 1099 form.
When is a 1099 required for a vendor?
What vendors need a 1099? The first threshold is simple: you don't have to file a 1099 form if you paid your vendor less than $600 during the year.
For 1099-eligible vendors you paid $600 or more, you'll need to fill out and file IRS Form 1099-NEC. The NEC stands for Nonemployee Compensation.
The 1099-NEC form for payments made during the calendar year is generally due to your 1099 vendors by January 31—giving you one month from the end of the tax year to fill out and issue those forms.
Internal Revenue Service 1099 vendor form
There are several different IRS forms that go by the number 1099. These are known as information returns because they report information on taxable income to independent contractors, rent payments, broker payments, and more. You can tell the difference between the forms by the letter or letters that follow the number.
The 1099 vendor form is Form 1099-NEC.
The same form is also used for any cash payments you make for fish or other aquatic life from "anyone engaged in the trade or business of catching fish" as well as payments for legal services to both attorneys and law firms.
Also, you should be aware that some payments should be reported on Form 1099-MISC instead. These include:
- Rent payments
- Royalties (with a threshold of only $10)
- Other income, including prizes and awards
- Federal income tax withheld, including backup withholding
- Fishing boat proceeds
- Medical and health care services
- Substitute payments in lieu of dividends or interest
- Crop insurance proceeds
- Gross proceeds paid to an attorney, for example in a settlement agreement (but payments to attorneys for services are reported on Form 1099-NEC)
- Fish purchased for resale (but other fish are reported on Form 1099-NEC)
- Section 409A deferrals
- Excess golden parachute payments
- Nonqualified deferred compensation
1099 requirements for vendors
To fill out a 1099 form, you'll need your vendor to fill out and provide you with a W-9 Form, so be sure to request a W-9 from any new vendor you hire.
The W-9 provides the requirements you'll need to file a 1099-NEC form properly, including the company's name, address, and taxpayer identification number. The tax ID will usually be the vendor's employer identification number (EIN) but may be a social security number (SSN) for sole proprietors.
How to pay 1099 vendors
You can pay 1099 vendors any way you like—or, better yet, any way your vendors prefer.
The key for 1099s is to track those payments carefully because you'll need to report them on the 1099 forms you file with the IRS. You'll also need to issue a 1099 to each vendor, who'll include the 1099 in their tax returns.
The simple 1099 solution from BILL
Face it—doing your own tax filing for 1099s can be tricky, tedious, and time-consuming. Yes, you can read the complete filing and reporting requirements of 1099-NEC and 1099-MISC forms on the IRS website and do it yourself, but why not simplify the process? Turn to a service—like BILL’s 1099 Filing—to reduce your workload and make filing a cinch.
1099 Filing uncomplicates tax season:
Everything in one place
Generate 1099s right in the same BILL platform you already use for AP.
We do the heavy lifting
BILL can collect, create, and file 1099s for you, with no outside software needed.
The price is right
1099 Filing has competitive, up-front pricing—because the last thing you want is a surprise fee.
Delivered your way
Users can choose electronic and/or physical delivery of forms.
Put tax season on easy mode with BILL’s 1099 Filing. Try BILL for yourself
