The Stakes Went Up Again
The IRS 1099 penalty regime for tax year 2025 (filed in early 2026) is now $60 per form for filings 30 days late, $120 per form for filings later than 30 days but before August 1, and $310 per form after August 1. Intentional disregard is $630 per form with no maximum. For a PM firm filing 200-400 1099s annually, getting this wrong is six figures of preventable exposure.
What Goes On Which Form
- 1099-NEC: Non-employee compensation. Vendor payments for services. Threshold: $600 per year.
- 1099-MISC Box 1 (Rents): Rents paid to property owners. Threshold: $600 per year.
- 1099-MISC Box 3 (Other income): Less common — prizes, awards, certain settlement payments.
- 1099-K: Issued by your payment processor, not you. Track the cross-reporting so you do not double-count.
The most common error is putting vendor payments on 1099-MISC instead of 1099-NEC. The IRS treats this as a missed filing and assesses the full penalty.
The Year-Round Discipline
The firms that have clean Januaries do the work all year:
- W-9 at onboarding. No vendor gets paid the first time without a W-9 on file. No exceptions, even for "we will get it later" vendors. The bookkeeper holds the first invoice.
- Owner W-9 at engagement. Every owner signs a W-9 at the start of the management agreement. If they refuse, you are required to backup-withhold 24% on distributions — which gets their attention.
- Vendor TIN validation. The IRS TIN matching system catches typos and entity-type mismatches. Run every new vendor through it within 30 days. A bad TIN that goes uncaught for 12 months becomes a B-notice and potential backup withholding requirement.
- Track payments by payee, not just by check. A vendor paid through three different bank accounts still gets one 1099 for the total.
The January Workflow
- Week 1: Pull payment totals by payee for the full prior year. Reconcile against bank records. Identify any payee over $600.
- Week 2: Verify W-9 and TIN for every 1099-eligible payee. Resolve any mismatches.
- Week 3: Generate forms, distribute copies to recipients (deadline: January 31).
- Week 4: File with the IRS (deadline for 1099-NEC: January 31; for 1099-MISC: February 28 paper, March 31 electronic).
What About Payments Through Payment Apps?
This is where 2025 got messy. The 1099-K threshold for third-party payment apps (PayPal, Venmo Business, Zelle for business) was scheduled to drop to $600 but was repeatedly delayed. For tax year 2025, the threshold is $5,000. For tax year 2026, it drops to $2,500. For tax year 2027, it is scheduled to drop to $600.
The practical implication: vendors paid through these platforms still get a 1099-NEC from you if they crossed $600 — the 1099-K is in addition, not instead of. This is exactly the cross-reporting case where double-counting on the recipient side causes audit hassle, but failure to issue your own 1099-NEC is your liability.
The Foreign Vendor Question
For any vendor that is a foreign individual or entity, you need a W-8 instead of a W-9, and the reporting is on form 1042-S — not 1099. This catches firms with offshore contractors (virtual assistants, overseas marketing services) who assume the 1099 process covers them. It does not.
Common Audit Triggers
- 1099 totals that do not reconcile to your books (the IRS does cross-match).
- Payee names that do not match the TIN on file at the IRS.
- Mismatch between vendor classification (1099 contractor vs. W-2 employee) and the level of control you have over the work.
- Owner 1099-MISC totals that do not match the owner's reported rental income.
The Software Question
Most PM platforms have a 1099 module that generates forms from your payment data. They are generally reliable for the mechanics but only as good as the data you put in. The trap is assuming the system has caught everything — manual reconciliation against your bank records is still necessary for the firms running clean filings.