IRS Reporting Requirements for Small Businesses – Tax Year 2025

The IRS requires small businesses to report payments made to vendors, subcontractors, and other parties using Form 1099-NEC or Form 1099-MISC. For 2025, the reporting threshold for both forms is $600, and the payment must be made by cash or check.
Do not report payments made via credit card, debit card, or third-party networks (e.g., Venmo, PayPal) on either form. The payment processors report these on Form 1099-K.

Form 1099-NEC

You must issue Form 1099-NEC if you paid $600 or more for:

• Services (not products or inventory)
• Commissions 
• Prizes or awards for services 
• Director or professional fees 
• Attorney fees paid strictly for legal services rendered

Do not include:

• Payments to personal service providers (e.g., babysitters, house cleaners)
• Payments to C or S Corporations, except for attorney fees

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Form 1099-MISC

You must issue Form 1099-MISC if you paid $600 or more for:

• Rents 
• Royalties 
• Other income (non–self-employment) 
• Gross proceeds paid to attorneys – typically when the attorney acts as an intermediary or escrow agent, such as receiving settlement funds or transaction proceeds that may be passed through to a client

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Form W-9 Collection

If you make payments reportable to the IRS, you are required to collect a Form W-9 from each payee.
You can download the form here: https://www.irs.gov/pub/irs-pdf/fw9.pdf

Best practice: Have vendors complete and return Form W-9 before beginning work.

When reviewing the form:

• Ensure the payee selects an entity classification in Box 3a
• If the payee is an LLC, they must also select a tax classification:
  
  • C for Corporation 
  • S for S Corporation 
  • P for Partnership or Trust/Estate, or 
  • If the LLC has only one owner and is treated as a disregarded entity, they should not check the LLC box. Instead, they should check “Individual/sole proprietor”.

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Backup Withholding

You may be required to withhold taxes from payments made to 1099 recipients in certain cases, such as:

• Failure to provide a valid Taxpayer Identification Number (TIN)
• IRS notification that the payee provided an incorrect TIN

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Other 1099 Forms You May Need to Issue in 2025

• Form 1099-DIV – For dividends paid by C Corporations 
• Form 1099-INT – For interest paid to individuals or businesses (non-bank) for loans 
• Form 1098 – For mortgage interest received when you are the lender

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Filing Deadlines

• January 31, 2026 – Most recipient copies must be sent 
• February 2, 2026 – Deadline to file Form 1099-NEC (paper or electronic) 
• March 2, 2026 – Deadline to file Form 1099-MISC (paper) 
• March 31, 2026 – Deadline to file Form 1099-MISC electronically

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Electronic Filing Requirements

For 2025, if you file 10 or more information returns, you are required to file electronically.
This threshold includes all information returns, such as payroll tax forms.

Penalties for failing to file electronically can range from \$60 to \$660 per return, plus interest.

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If you would like KMAF to prepare your 1099s for tax year 2025, please click the following link:

https://kmaf.cpa/20241099TEMPLATE. This will allow you to download an Excel sheet to complete and return to our office for processing.

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If you have any questions, please reach out:

Christopher Williams, CPA/PFS, CFP®, MST – chrisw@kmaf.cpa  

Gregory Litvinuck, CPA – gregl@kmaf.cpa  

Art G. Svrjcek, CPA – arts@kmaf.cpa  

Main Office: (410) 643-4477