Common Mistakes to Avoid When Filing Form 1099 and How to Fix Them

Filing Form 1099 is a crucial responsibility for businesses that work with contractors or issue payments requiring IRS reporting. But the process isn’t always straightforward. From navigating multiple forms to understanding specific reporting rules and meeting strict deadlines, there’s a lot that can go wrong. A minor mistake could snowball into penalties, added stress, and compliance issues.

If questions like “How do I file a 1099?” or “How to do 1099 taxes?” are on your mind, you’re not alone. This 1099 NEC 2025 guide will break down the common pitfalls businesses face when 1099 filing and offer actionable steps on how to do 1099 tax to fix them.

1. Failing to Collect Updated Information via Form W-9

One of the most common mistakes during 1099 filing is not obtaining or updating Form W-9 from contractors every year. The W-9 provides critical information, such as the contractor’s name, address, and Taxpayer Identification Number (TIN).

Over time, contractors may change their legal business name, address, or even TIN. If you’re using outdated information, the 1099 you file may not match IRS records, leading to penalties or rejection.

Make it a policy to request a new W-9 from each contractor at the start of every calendar year. This ensures you have accurate information when it’s time for 1099 filing. 

2. Not Validating Taxpayer Identification Numbers (TINs)

While collecting W-9 forms is essential, failing to validate the TIN provided is another common error. Incorrect TINs can lead to mismatches with IRS records, resulting in the payer’s liability for backup withholding taxes.
Use the IRS TIN Matching Program to validate TINs before filing your 1099. This extra step ensures the information provided by your contractors is accurate and helps you avoid potential fines.

3. Overlooking Form W-8 for International Payees

If you’re working with international contractors or vendors, you might assume that Form W-9 is sufficient. However, international payees need to submit Form W-8, which determines their tax residency and whether withholding tax applies.
Request the correct version of Form W-8 from international payees. Keep these forms on file and use them to determine whether withholding taxes are applicable. This ensures compliance with IRS requirements for international transactions.

4. Misclassifying Payment Types (NEC vs. Misc)

Another common error in 1099 filing is failing to differentiate between nonemployee compensation (NEC) and miscellaneous income (MISC). These two categories have separate reporting requirements and withholding rules.

For example, payments to independent contractors for services fall under 1099-NEC, while rents, prizes, and attorney fees are reported under 1099-MISC. Misclassifying these payments can result in filing the wrong form and potential penalties.
Before filing, carefully review the nature of each payment. Create a checklist to bifurcate payment types into NEC or MISC categories. Ensure that all payments for services are included here, and validate withholding rules if applicable.

5. Missing the Filing Deadline

The IRS has strict deadlines for 1099 filing. For 2025, you need to file Form 1099-NEC with the IRS by January 31, 2025, and provide copies to contractors by the same date. Missing these deadlines can result in penalties that increase based on how late the filing is.
Create a 1099 filing calendar and set reminders well in advance of the deadline. Use accounting software or third-party 1099 services to streamline the process and ensure timely submissions.

6. Incorrectly Calculating Withholding Taxes

Sometimes businesses fail to withhold taxes when required, especially in cases involving foreign payees or incorrect TINs. This results in the payer being liable for taxes that should have been withheld.
Understand the IRS rules for 1099 filing for backup withholding and ensure compliance. If a contractor fails to provide a valid TIN, you’re required to withhold 24% of their payments. For foreign payees, consult Form W-8 to determine applicable withholding rates.

7. Forgetting to File Corrected Forms

Mistakes happen, but ignoring errors after filing Form 1099 can escalate the problem. Whether it’s a misspelled name, wrong amount, or incorrect TIN, failing to submit a corrected form can lead to IRS penalties.
If you discover an error, file a corrected 1099 as soon as possible. Use the “X” checkbox on the corrected form and resubmit it to the IRS and the contractor. Keeping a record of corrections ensures transparency and compliance.

8. Relying Solely on Manual Processes

Manually filling out 1099 forms is prone to human error, especially if you’re dealing with multiple contractors. Missing details, duplications, or even using the wrong form version can create issues.
Invest in reliable accounting software or hire a professional service to handle your 1099 filing. Automation reduces errors, saves time, and ensures compliance with IRS guidelines.

Bonus Tips for 1099 Filing Success

1. Double-Check Data: Always review contractor details, payment amounts, and the type of form required before submitting.
2. Understand Filing Thresholds: Not all payments require a 1099. For example, you only need to issue a 1099-NEC if total payments exceed $600 in a calendar year.
3. Stay Updated on Tax Laws: IRS requirements for 1099 forms can change annually. For instance, businesses filing the 1099-NEC for 2025 should be aware of any updates to the process or deadlines.
4. Keep Records: Retain copies of filed 1099 forms and contractor information for at least three years. This ensures you have documentation in case of an audit.

Why Accurate 1099 Filing Matters

Accurate 1099 filing isn’t just about compliance—it protects your business from financial penalties and fosters trust with contractors. While differentiating between Form 1099 and Form W2, following these steps will help you avoid common pitfalls.

In conclusion, ensuring proper documentation, validating information, and adhering to IRS guidelines are the keys to successful 1099 filing. By taking proactive steps, you can streamline the process, avoid penalties, and focus on growing your business.

Remember, mistakes in filing are costly but avoidable. Follow these tips and simplify your filing process for 2025 and beyond!