1099 Vendor Requirements and W-9s

A 1099 vendor is a supplier your business must report payments for on a Form 1099, typically an independent contractor, freelancer, sole proprietor, partnership, or LLC taxed as one. For payments made in 2026 the reporting threshold is $2,000, up from $600, and payments made with a credit card or through a third-party network are excluded because the processor reports them instead. Corporations are generally exempt, with a short list of exceptions.

Last updated July 2026. General information for US accounts payable teams, not tax advice. Check the current IRS instructions before you file.

Almost everything that goes wrong with 1099 reporting happens months before January. A vendor is set up without a W-9, nobody records whether it is a corporation, card payments get mixed in with checks, and then someone spends the first three weeks of the year reconstructing a year of payments from the check register. This guide covers who counts, what the current thresholds are, and the AP habits that make January uneventful.

What is a 1099 vendor?

A 1099 vendor is any payee to whom your business makes reportable payments in the course of its trade or business and who is not an employee. The name comes from the information return you file: Form 1099-NEC for nonemployee compensation, and Form 1099-MISC for rents, prizes, medical payments, and other categories. Employees get a W-2 instead, and the distinction between the two is a worker classification question with real penalties attached, not an administrative preference.

In practice, the 1099 vendors in a typical accounts payable ledger are contractors, consultants, freelance designers and developers, cleaning and maintenance crews, landlords, attorneys, and unincorporated repair shops.

What is the 1099 threshold for 2026?

$2,000. The IRS instructions for Forms 1099-MISC and 1099-NEC, revised December 2026, state that for tax years beginning after 2025 the minimum reporting threshold rose to $2,000, and that the amount may be adjusted for inflation beginning in calendar year 2027. That replaces the $600 threshold that had stood for decades.

Two details matter to AP right now:

• Payments made during 2025, reported in early 2026, still use the old $600 threshold. The increase applies to payments made in 2026 and later.
• One box did not move. Gross proceeds paid to an attorney, reported in box 10 of Form 1099-MISC, still carry a $600 threshold in the December 2026 instructions. Attorneys' fees reported as nonemployee compensation moved to $2,000. If your business settles claims or holds funds through counsel, that difference is worth flagging to whoever prepares the returns.

Thresholds are per payee, per calendar year, aggregated across all reportable payments in that box. Two $1,200 payments to the same contractor in 2026 total $2,400 and are reportable, even though neither payment alone crosses the line.

Which vendors are exempt from 1099 reporting?

Payments to corporations, both C corporations and S corporations, are generally exempt. That single rule removes most of a mid-market vendor master from scope. The exceptions in the IRS instructions are the ones to memorize, because they apply even when the payee is a corporation:

Note the "ordinary goods" row. Buying $400,000 of steel from an unincorporated supplier generates no 1099, because payments for merchandise, telegrams, freight, storage, and similar items are excluded. 1099 reporting is about services, rents, and specific categories, not about spend.

Do you send a 1099 to a vendor paid by credit card?

No. The IRS instructions are explicit: payments made with a credit card or payment card, and certain other payments including third-party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W, and are not reported on Form 1099-MISC or 1099-NEC by you.

This is the single most common 1099 error in accounts payable. A contractor paid $9,000 by ACH and $4,000 by corporate card should have $9,000 on the 1099-NEC, not $13,000. Reporting the full amount duplicates income that the card processor has already reported on a 1099-K, and the contractor finds out when the IRS asks about it. Your AP system needs to distinguish payment method by transaction, not by vendor.

What is a Form W-9 and when do you collect it?

Form W-9 is how a payer requests a payee's taxpayer identification number and the certifications that go with it, including the payee's federal tax classification. Collect it before you make the first payment, not at year end. A vendor with an outstanding invoice will return the form in a day. A vendor you already paid in full will not return your calls.

The W-9 answers the two questions the vendor master needs: what is the legal name and TIN, and is this entity a corporation. That is what determines whether the vendor is in scope at all. Build the request into vendor onboarding alongside the banking details and the insurance certificate, and refuse to release the first payment without it. Sending the form for signature electronically rather than as an email attachment the vendor must print, sign, and scan removes most of the delay.

What happens if a vendor will not provide a TIN?

You must begin backup withholding. Under section 3406, a payer making reportable payments to a payee who has not furnished a correct TIN must deduct and withhold 24% of the payment and deposit it with the IRS. A payer who fails to withhold when required can be held liable for the amount that should have been withheld, which is a real and unpleasant way to fund a contractor's tax bill out of your own margin.

Backup withholding also applies when the IRS notifies you that a TIN is incorrect, or that the payee underreported interest or dividends. It stops when the payee furnishes a certified correct TIN and the underlying condition is resolved.

What is a substitute W-9?

A substitute W-9 is your own version of the form, usually embedded in a vendor onboarding portal or packet. The IRS allows it if it is substantially similar to the official form. It must collect the payee's name, TIN, and a signature and date under penalties of perjury, and it must not require the payee to agree to unrelated provisions. Where one signature line covers several purposes, the perjury certifications have to be highlighted, boxed, printed in bold, or otherwise made to stand out from the rest of the document. A vendor portal that buries the certification inside terms and conditions is not a valid substitute W-9.

What is IRS TIN matching?

TIN Matching is a free IRS pre-filing service that lets authorized payers check a name and TIN combination against IRS records before filing information returns. It is open to payers of income subject to backup withholding, including the 1099 series, once they have registered and are listed on the IRS Payer Account File. It runs interactively for one-off checks and in bulk for a whole vendor master.

Running the vendor file through TIN matching in November costs an afternoon. Filing 300 returns with four bad TINs costs a round of B-notices, a possible penalty, and the backup withholding you should have started months earlier.

When are 1099s due?

If you file 10 or more information returns in aggregate, counting most return types together including W-2s, you must file electronically. That aggregate rule catches far more small businesses than the old 250-return threshold did. Electronic filing goes through the IRS Information Returns Intake System (IRIS) or the older FIRE system.

What are the penalties for a late or incorrect 1099?

The penalty is per return, and it escalates with how late the return is. For information returns required to be filed in 2026, covering payments made in 2025, the IRS lists $60 if you file within 30 days of the due date, $130 if you file after that but by August 1, and $340 if you file after August 1 or not at all. Intentional disregard is $680 per return with no annual cap. Amounts for returns filed in 2027 had not been published as of July 2026.

Two penalties can apply to the same failure, one for the copy that goes to the IRS and one for the copy that goes to the recipient. A 200-vendor filing that slips past August 1 is not a rounding error.

How accounts payable should handle 1099 vendors year round

The work is boring and it belongs in the ledger, not in a January spreadsheet.

• No W-9, no payment. Make it a hard control in the vendor master rather than a policy nobody enforces.
• Store the federal tax classification as a field, not as a scanned PDF. "Is this vendor a corporation" has to be answerable with a query.
• Flag the exception categories. Attorneys and medical providers stay in scope even when incorporated. Tag them at setup.
• Record payment method on every transaction so card and third-party network payments can be excluded at year end.
• Track payments by calendar year, on the cash basis, regardless of the fiscal year your financials use. The 1099 reports what you paid, not what you accrued.
• Run TIN matching before year end, while there is still time to chase a corrected W-9.
• Reconcile the 1099 report to the payments ledger in December, not in the last week of January.

Most of that discipline lives or dies on the quality of the underlying vendor and invoice data. If the vendor name on the invoice does not match the vendor record, if the invoice sits in an inbox until someone types it, or if the same supplier exists three times under three spellings, the 1099 report will be wrong no matter how good the tax analysis is. Clean capture at the point the invoice arrives is what makes the year-end report trustworthy, and it is the same control that stops duplicate payments and survives an accounts payable audit. Upload an invoice at the top of this page to see the vendor, invoice number, dates, and totals pulled out as structured data.

Common questions about 1099 vendors

Do LLCs get a 1099? It depends on how the LLC is taxed, which is exactly what the W-9 tells you. A single-member LLC or an LLC taxed as a partnership is reportable. An LLC that has elected corporate taxation is generally exempt, subject to the attorney and medical exceptions.

Do you send a 1099 for rent? Yes, rent paid in the course of your trade or business is reported in box 1 of Form 1099-MISC, unless it is paid to a real estate agent or property manager, who then handles the reporting to the property owner.

Do you 1099 a vendor for parts and materials? No. Payments for merchandise and goods are not reportable. Where a single invoice covers both labor and parts, the general practice is to report the full amount if the services are the substance of the arrangement, and the safe course is to ask your tax preparer rather than to guess.

Is a 1099 vendor the same as an independent contractor? Nearly, but not exactly. Every independent contractor you pay above the threshold is a 1099 vendor. Not every 1099 vendor is a contractor: a landlord receiving rent and an unincorporated law firm receiving fees are also 1099 vendors, reported in different boxes on different forms.

Every term used here, from vendor master to remittance advice, is defined in our accounts payable glossary.