Who Gets a 1099? A Controller’s Guide to 2025 Tax-Year Compliance

To determine if a specific vendor requires this form, you must apply a four-point test to the payment. If the transaction meets all four criteria, you have a filing obligation. 

1. The payment must be made to a service provider who is not your employee and who receives a Form W-2. 
2. The payment must be for services in the course of your trade or small business. Personal payments do not count. 
3. Payment must be made to an individual, partnership, estate, or (in some specific cases) a corporation. 
4. Lastly, the total payments to the payee must equal or exceed $600 for the tax year.

While those rules seem straightforward, there is a major exception that can mislead finance teams: how you pay the service provider matters. You do not need to file a Form 1099-NEC if you paid the contractor via payment card, debit card, or a third-party settlement organization (TPSO) like PayPal.

In these scenarios, the payment processor is responsible for reporting the income on Form 1099-K. If you file a 1099-NEC for these payments anyway, you risk over-reporting the contractor’s income to the IRS. This can trigger audit notices for your vendor and create major administrative headaches for your team to untangle.

One of the most common uses of this form is to report rent. If you pay office rent to a landlord totaling $600 or more during the year, that amount goes in Box 1. Royalties have an even stricter rule: if you paid over $10 in royalties for intellectual property usage, that belongs in Box 2.

Because royalty payments have a lower reporting threshold, they can be easier to overlook in a high-volume AP environment. Additionally, if you are involved in direct sales of consumer products for resale totaling $5,000 or more, you must check Box 7.

The other critical category involves legal payments. Gross proceeds paid to an attorney (specifically, settlement funds rather than billable hours) must be reported here. It is also used to report insurance proceeds in specific medical contexts.

Finally, ensure you do not confuse this with investment income. Dividends and interest are reported on Form 1099-DIV and Form 1099-INT, respectively, each with its own specific reporting requirements.

For a Controller, keeping these two forms straight ensures your data is sorted correctly long before tax season arrives. Filers must understand that while both forms report income, they serve different purposes in the eyes of the IRS.

The core distinction lies in the nature of the payment. If you paid someone for work, such as their labor, expertise, or time, that almost always belongs on a 1099-NEC. If you paid them for the use of something, such as renting their building or using their intellectual property, that should be reported on the 1099-MISC. 

Mixing these up can confuse your vendors when they file their own taxes and may lead to mismatch notices from the IRS.

Beyond the “what,” there is the “when.” The 1099-NEC has a strictly enforced filing deadline of January 31st for both the IRS and the recipient, leaving you very little time to close your books and file a 1099 online. The 1099-MISC offers a bit more breathing room for the IRS filing, though recipient copies are still due early. The table below breaks down these key differences for quick reference.

You typically do not need to send a 1099-NEC or 1099-MISC to a corporation. This applies to both C Corporations and S Corporations. 

If a vendor is listed as “Inc.” or has checked the Corporate box on their tax form, you can generally mark them as exempt in your AP system.

LLCs are one of the most challenging entity type for AP compliance because their tax status cannot be determined solely by examining their name. An LLC is a legal designation, not a federal tax classification.

To determine whether you need to file, review the specific tax classification code they entered in Box 3 of their Form W-9. If they checked “C” (C Corporation) or “S” (S Corporation), they are generally exempt. 

However, if they checked “P” (Partnership) or are a single-member LLC, you must issue a 1099. This is a common scenario for real estate agents and consultants who operate as LLCs but are taxed as sole proprietors.

Attorneys are the major exception that breaks the corporate rule. Under specific tax law regulations, you must issue a 1099 for legal services even if the law firm is incorporated. As the payer, if you send a law firm $600 or more during the year, you have a reporting obligation.

This is a critical difference for global businesses. If a non-U.S. person performs work entirely outside the United States, they do not receive a 1099. Instead, you must collect a Form W-8BEN (for individuals) or Form W-8BEN-E (for entities) to certify their foreign status.

You generally do not need to report payments to tax-exempt organizations, such as 501(c)(3) non-profits. This exemption usually extends to payments made to a financial institution or distributions to IRAs (Individual Retirement Arrangements).

The 1099-NEC is specifically for services. If you pay a supplier strictly for physical products, materials, freight, or storage, no information return is required. However, if a payment covers both goods and services, you typically report the entire amount.

The process starts with a self-service supplier portal. Instead of your team manually entering data from emailed PDFs, your payees enter their own information into a secure white-labeled environment. 

The system utilizes tax logic to automatically present the correct form. This approach involves asking the right questions to determine whether a payee requires a W-9, a W-8BEN, or a W-8BEN-E, helping to ensure that you collect the correct document every time without needing your AP team to intervene.

Collecting the tax form is only the first step—validation is where compliance risk is reduced. Tipalti automatically checks each payee’s TIN against IRS records in real time, preventing incorrect information from entering your vendor master file and helping you avoid downstream issues like B-Notices.

This added layer of verification also strengthens fraud prevention by improving data accuracy, reducing manual handling, and ensuring your tax and payment workflows stay secure and audit-ready.

Throughout the year, the platform helps finance teams track contractor payments against IRS thresholds and apply consistent 1099-NEC reporting logic, including excluding payment types—such as many credit card transactions—that typically aren’t reportable. As year-end approaches, teams can generate a “who gets a 1099” list with cleaner data, fewer exceptions, and significantly less manual reconciliation.

For companies growing fast, this scalability is essential. Kiva Alvarez, Senior Accountant at Symphonic Distribution, described the impact:

Tipalti has been a lifesaver in terms of scaling up international payments! It doesn’t matter if you send 100 or 5,000 payments in a month… the reporting for 1099 and 1042 tax reports has been very helpful.

Even when your payee data is clean, year-end filing can still become a bottleneck. Especially if your team is exporting spreadsheets, formatting CSVs, and manually uploading files across multiple systems. As volume grows, that extra handling increases the risk of errors, missed deadlines, and last-minute rework.

Tipalti recently launched a native integration with Zenwork Tax1099, making it easier for finance teams to e-file Forms 1099-NEC and 1099-MISC using validated payee and payment data already captured in Tipalti.

Instead of treating year-end filing as a standalone project, teams can navigate year-end reporting with greater consistency, control, and fewer manual steps, while keeping workflows aligned across mass payments and AP automation.