Form 1099 Due Diligence: Avoid Errors & Fines in 2025

Navigating IRS forms isn’t everyone’s favorite task—but for businesses, Form 1099 due diligence is a must-do, especially in 2025. With updates to the 1099 NEC threshold 2025 and increased enforcement by the IRS, organizations that fail to prepare could face audits, penalties, or delayed filings.

Understanding the distinctions between Form 1099-MISC, NEC filings, and your compliance obligations helps keep you out of hot water. This article outlines everything you need to know to stay accurate, efficient, and penalty-free.

What Is Form 1099 and Why Does It Matter?

The IRS requires Form 1099 to report various types of non-employee income. While there are several types, the two most common are:

• Form 1099-MISC: Used for rent, legal settlements, prizes, or other miscellaneous payments.

• Form 1099-NEC: Specifically used for non-employee compensation, like payments to freelancers or contractors.

If you make qualifying payments, you’re legally required to report them—missing this obligation can lead to substantial fines.

Key Updates: 1099 NEC Threshold 2025

For 2025, the 1099 NEC threshold remains at $600, meaning any non-employee who is paid $600 or more in a tax year must receive a Form 1099-NEC. However, more scrutiny and automation at the IRS mean even borderline errors can trigger red flags.

Additionally, the IRS is ramping up digital processing. If you file more than 10 returns, you must e-file instead of mailing paper forms—this rule includes all 1099 forms combined, not just NEC.

Who Needs to File a 1099?

Any business that pays individuals or entities (excluding corporations in most cases) for services totaling $600 or more annually needs to file either a 1099-NEC or Form 1099-MISC. Common recipients include:

• Freelancers and independent contractors

• Lawyers or law firms (even if incorporated)

• Landlords

• Marketing consultants

• Gig economy workers

Failure to correctly identify these vendors can result in underreporting penalties.

Common Errors in Form 1099 Filings

Mistakes in 1099 filings are more common than you’d think. Here's where most filers go wrong:

• Using the wrong form (e.g., NEC instead of MISC)

• Entering incorrect TINs or names

• Missing filing deadlines (typically Jan 31 for recipient copies and e-filing)

• Reporting payments under the wrong box on the form

• Failing to include payments to attorneys, even if they’re incorporated

Avoiding these errors requires both awareness and updated internal systems.

Form 1099-MISC vs. NEC: Know the Difference

Getting this distinction right is crucial for Form 1099 due diligence.

The Penalties for Incorrect 1099 Filings in 2025

In 2025, penalties can add up quickly:

• Up to $630 per form for intentional disregard

• Late filing penalties range from $60–$310 per form, depending on how late

• 1099 NEC threshold 2025 mistakes can lead to backup withholding issues and tax mismatches

You can also be penalized for not giving recipients their copy on time—even if you filed with the IRS.

Form 1099 Filing Checklist for 2025

To ensure you’re filing correctly, follow this checklist:

• ✅ Collect W-9 forms from all vendors before paying them

• ✅ Verify TINs using the IRS TIN Matching Program

• ✅ Categorize all vendor payments (service vs. product)

• ✅ Determine which vendors hit the 1099 NEC threshold 2025

• ✅ Use updated IRS forms (NEC and Form 1099-MISC)

• ✅ File recipient copies by Jan 31 and e-file by IRS deadlines

• ✅ Retain copies and proof of delivery for at least four years

Leverage Compliance Training Solutions

To stay ahead of changes and avoid costly errors, many businesses are turning to compliance training solutions. These include:

• Online IRS compliance courses for HR and accounting

• Automated software that tracks 1099 thresholds and due dates

• Annual refreshers for finance teams on tax code updates

• Workshops focused on TIN validation and e-filing best practices

When your team is educated and systems are streamlined, the risk of a misstep drops dramatically

1099 Red Flags That Could Trigger an IRS Review

Here’s what may prompt the IRS to scrutinize your filings:

• High volume of 1099-NEC filings with mismatched TINs

• Filing for individuals below the 1099 NEC threshold 2025

• Failing to file for contractors that clearly earned over $600

• Using outdated forms or missing box entries

• Previous-year errors that weren’t corrected

Proactive Form 1099 due diligence is your best defense.

IRS E-Filing Rules for 2025

A significant change for 2025 is mandatory e-filing if you’re submitting more than 10 forms in total. This includes not just Form 1099s, but also W-2s and other information returns. Use the FIRE system or certified third-party platforms to meet this requirement.

What If You Discover an Error After Filing?

Don’t panic—corrections are possible. Here’s how to fix it:

• File a corrected 1099 using the proper box and “Corrected” checkbox

• Issue the corrected copy to the recipient

• Keep a detailed log of changes for audit protection

Acting quickly minimizes potential penalties.

Conclusion: Stay Compliant and Confident

With the 1099 NEC threshold 2025 still set at $600 and IRS enforcement intensifying, the margin for error is thin. But with proactive planning, the right tools, and compliance training solutions, you can avoid missteps that lead to fines.

Make Form 1099 due diligence a regular part of your accounting workflow—not just a last-minute scramble. When you treat it like a year-round process, your filings become a breeze, not a burden.