· Published by Small Business Tool Lab
Start with the payment year, not the year printed on your calendar. Forms covering 2025 payments were generally filed in 2026. Forms covering 2026 payments will generally be filed in 2027. Mixing those years can produce the wrong reporting threshold and the wrong penalty schedule.
For certain business payments, the federal reporting threshold increased from $600 for 2025 payments to $2,000 for 2026 payments. That is not a universal threshold for every 1099 category. Use the instructions for the specific form and payment type. [1, 2]
The seven mistakes below are a practical cleanup order, not a statistically established ranking of the most expensive errors. Actual exposure depends on the number of forms, timing, correction, exceptions, and possible relief.
1. Applying a new threshold to an old payment year
Do not use the $2,000 threshold to dismiss unfiled forms for qualifying 2025 payments. Equally, do not tell a business preparing qualifying 2026 returns that $600 is always the current threshold. Separate the two payment years in the ledger. [1]
Consider a hypothetical contractor paid $1,500 by check in each year. Assuming a reportable service payment and no exemption, that amount reaches the 2025 $600 threshold but not the 2026 $2,000 threshold. The same vendor and same amount can produce different reporting results.
Keep records below the reporting threshold. A threshold determines an information-return obligation; it does not make the payment disappear from the books or make the recipient's income automatically tax-free.
2. Treating every legal payment as the same form
Nonemployee service compensation generally belongs on Form 1099-NEC. Reportable rents and certain other payments belong on Form 1099-MISC. Attorney service fees and gross proceeds paid to an attorney are distinct categories; gross proceeds can remain subject to a $600 threshold even when certain service-payment thresholds rise. Incorporated law firms are not automatically exempt. [2]
Mark the payment's purpose before picking the form. “Attorney” in the vendor name is not enough to distinguish a bill for services from settlement-related gross proceeds. Have a qualified tax professional resolve an ambiguous settlement payment.
Incorrect returns can attract penalties, but the amount depends on the filing year, correction timing, exceptions, and relief. [3]
3. Double-reporting payment-card transactions
Payments made by credit or payment card, and qualifying third-party network transactions, are generally handled under Form 1099-K reporting by the payment settlement entity, rather than also being reported by the payer on Form 1099-NEC or MISC. [2]
Identify the transaction channel. Do not decide solely by whether the contractor says a 1099-K arrived. Some payment apps support different transaction types, and an ordinary bank transfer is not automatically a qualifying payment-network transaction.
For a hypothetical $3,200 vendor total made up of $2,200 in reportable direct payments and $1,000 through qualifying payment-card transactions, flag the two amounts separately. Review the direct-payment portion under the applicable NEC rules; do not copy the full $3,200 total onto a form without checking.
4. Leaving names and tax IDs unresolved
Request the vendor's Form W-9 and reconcile its tax name and classification with your vendor record. An LLC's display name alone does not establish the correct tax reporting identity or whether an exemption applies.
Eligible payers or authorized agents can use IRS TIN Matching. It is not a public tool available to everyone without registration or eligibility. An IRS mismatch notice requires the appropriate follow-up process; one typo does not by itself mean every future payment instantly becomes subject to withholding. [1, 4]
If you receive a notice, keep its envelope or received date, the vendor record, W-9, and response evidence together. Do not publish or circulate full tax IDs in an ordinary project spreadsheet.
5. Waiting until year-end to request a W-9
Collect the information early enough to resolve problems before payment reporting is due. A missing W-9 is not a blanket excuse for failing to file. Depending on the reportable payment and missing or incorrect TIN circumstances, 24% backup withholding can apply; follow IRS procedures rather than a generic “withhold every payment” rule. [4]
Create a vendor checklist with four fields: W-9 received, tax classification reviewed, payment channel identified, and year-to-date total reconciled. A blank field tells you what to request. It is more useful than a folder full of documents with no review status.
6. Counting only NEC forms toward the e-file threshold
The mandatory electronic-filing threshold is generally ten aggregate information returns, including relevant forms such as W-2s. It is not ten NECs considered in isolation. Waivers and exceptions can apply. [1, 3]
For example, six NEC forms and four W-2s can reach the aggregate threshold even though neither group reaches ten individually. Check the applicable aggregation rules before deciding paper filing is permitted.
IRS states FIRE will retire at the end of filing season 2026 and that after January 1, 2027, IRIS will be the only information-returns electronic filing system for the returns covered by that transition, including prior-year and corrected returns. Separate reporting channels, such as SSA W-2 filing, remain relevant. [5]
7. Mixing deadlines and penalty years
The NEC deadline for 2025 payments was February 2, 2026, because January 31 fell on a Saturday. That is a past deadline in an October article, not an upcoming task. The normal January 31 rule and weekend adjustment put the next NEC deadline on February 1, 2027. Other forms can have different filing and furnishing dates. [6]
The IRS schedule for returns due in 2026 lists $60 per return or statement corrected within thirty days, $130 from thirty-one days through August 1, and $340 after August 1 or if not filed. Separate IRS-filing and recipient-statement penalties can apply; intentional disregard has different treatment. These are not automatically the amounts for returns due in 2027. [3]
An illustration: ten required 2025 NECs never filed or furnished could produce 10 × $340 × 2 = $6,800 under that 2026 late category, before considering caps, relief, or other circumstances. This is conditional arithmetic, not a prediction of a notice any particular business will receive.
A cleanup plan for this month
- Export vendor payments and divide them into 2025 and 2026 tabs.
- Reconcile each vendor's total to the books and separate payment channels.
- Review W-9 status, payment category, and applicable reporting exceptions.
- Correct outstanding 2025 reporting problems promptly with qualified help.
- Prepare 2026 records and e-filing access before the next deadline.
Keep a status column for “submitted,” “accepted,” “recipient furnished,” and “correction required.” Uploading a file is not the same as resolving a rejection. Save the relevant acceptance record and delivery evidence.
Questions small businesses ask
Is every 1099 threshold now $2,000?
No. The change covers specified payment categories; others retain different thresholds. Check the form and payment type. [1, 2]
Does paying a corporation always eliminate reporting?
No. Legal-service reporting is one exception. An LLC's tax classification also matters. [2]
Does filing late guarantee the largest penalty?
No. Timing, correction, exceptions, and reasonable cause affect treatment. Respond to an IRS notice by its stated deadline. [3]
Can the business skip records below the threshold?
No. Keep complete accounting records and identify reporting obligations from those records, rather than deleting smaller payments from the review.
Published by Small Business Tool Lab. Reviewed October 10, 2026. Educational information only; not personalized tax or legal advice. Examples are hypothetical.