Issuing 1099s isn’t complicated, but it’s one of the fastest ways to trigger penalties if you get casual about it. Every January, I see business owners lose deductions, rack up fines, or spend months cleaning up avoidable mistakes because they didn’t follow the rules.
Here’s what actually matters for 2026, what’s changed, and how to stay compliant without making this harder than it needs to be.
Why 1099s Matter More Than You Think
1099s aren’t just paperwork. They’re how the IRS cross-checks deductions. If you deduct a contractor expense and fail to issue a required 1099, the IRS can disallow the deduction and assess penalties on top of it.
Penalties add up fast. For 2026 filings, late or incorrect 1099s can trigger penalties ranging from $60 to $340 per form, depending on how late they’re corrected. If the IRS determines you intentionally ignored the requirement, the penalty jumps to $680 per form with no maximum.
That’s not theoretical. I’ve seen small businesses rack up five-figure penalties over a handful of missed forms.
Who Is Required to Issue 1099s
If you’re paying for services in the course of running a business, you’re likely responsible for issuing 1099s.
You do not need to issue 1099s for personal payments, like paying a handyman to work on your own home. But if the payment is connected to a business or rental activity, the rules apply.
Businesses commonly required to issue 1099s include:
- Business owners paying contractors
- Rental property owners
- Anyone paying non-employees for services
Failing to issue a required 1099 can cost you both the deduction and a penalty.
The Most Common 1099 Forms in 2026
Form 1099-NEC
This is the most common form business owners deal with. You must issue Form 1099-NEC to each non-employee you paid $600 or more for services during the year, as long as the payment was made in the course of your business.
This includes freelancers, independent contractors, consultants, and service providers who are not your employees.
Form 1099-MISC
Form 1099-MISC is still used, but for more specific situations. Common examples include:
- Rent payments
- Prizes and awards
- Certain other income payments
It is not used for contractor services anymore. That moved to 1099-NEC permanently.
Form 1099-INT
If you paid $10 or more in interest to someone, like a private lender, you’re required to issue Form 1099-INT. This applies to business loans, seller-financed notes, and private lending arrangements.
Form 1099-DIV
Form 1099-DIV is generally issued by banks and financial institutions, but C-corporations with shareholders may need to issue it when paying dividends.
Form 1099-R
This form reports distributions from retirement accounts, pensions, annuities, IRAs, and 401(k)s. Most business owners won’t issue this themselves, but you should expect to receive one if you took retirement distributions.
Who Does NOT Need a 1099
You generally do not need to issue a 1099-NEC for payments made to:
- C-corporations or S-corporations (with one major exception)
- Vendors selling merchandise, inventory, freight, or storage
- Payments made by credit card or third-party processors like PayPal or Stripe
- Payments under $600 for the year
The Lawyer Exception
Attorneys are the big exception. Legal fees paid to lawyers must be reported on a 1099, even if the law firm is incorporated. This rule exists specifically to prevent underreporting of legal income.
If you paid a lawyer $600 or more for business services, expect to issue a 1099-NEC.
Electronic Filing Rules in 2026
This is where many people still get burned. If you file 10 or more total information returns, including all 1099s combined, you are required to file electronically. This threshold was lowered and is strictly enforced. If you file fewer than 10 forms, paper filing is still allowed, but electronic filing is strongly encouraged. Filing paper forms when electronic filing is required can trigger penalties even if the forms are otherwise correct.
1099 Deadlines for 2026 Filings
For payments made in 2025 and reported in 2026:
- February 2, 2026 is the deadline to provide 1099-NEC forms to contractors
- February 2, 2026 is also the deadline to file 1099-NEC forms with the IRS, whether filed electronically or by mail
Many states also require copies, either directly or through combined federal/state filing systems. State rules vary, so confirm requirements early.
Why the W-9 Is Your Best Friend
The easiest way to avoid 1099 chaos is simple. Get a Form W-9 from every vendor before you pay them.
The W-9 tells you:
- How the vendor is taxed
- Whether they’re exempt from 1099 reporting
- Their correct tax ID and address
If you don’t have a W-9 and January rolls around, you’re scrambling. That’s when mistakes happen. No W-9, no payment. That rule alone saves more headaches than any software ever will.
What Happens If You Miss a Deadline
If you’re late, file anyway. Fast action matters.
If it’s your first offense and you can show reasonable cause, the IRS may waive penalties. Ignoring the issue guarantees bigger fines and more scrutiny.
I’ve seen cases where late filing led to massive penalties simply because the wrong filing method was used. Fixing those problems costs far more than doing it right the first time.
The Bottom Line
1099 compliance isn’t optional, and it isn’t something to clean up later. If you deduct the expense, the reporting needs to match. Miss that step and you’re inviting penalties, lost deductions, and unnecessary stress.
If you’re unsure whether you issued the right forms or followed the correct filing method, fix it now. My team at KKOS Lawyers helps business owners clean up 1099 issues, tighten compliance systems, and avoid penalties before the IRS gets involved. Book a free 15 minute call and get clarity before a simple filing mistake turns into an expensive problem in 2026.
Waiting never makes this cheaper.
