Alicia Katz Pollock, host of The Unofficial QuickBooks Accountants Podcast, just spent a week in what she calls “1099 Heaven,” teaching her comprehensive 1099 class and attending Nancy McClelland’s Ask a CPA workshop. She came away from that week ready to share a concentrated breakdown of everything accounting professionals need to know about 1099 filing.
“I’ve been watching the socials and people are asking, ‘Which report do I run so to filter out payments under $600 and payment processors?’ and, ‘How do I export to Excel?’” Alicia observes. “And the truth is, you don’t need to.”
QuickBooks Online has built-in tools that handle most of the filtering and analysis automatically. Yet every January, accounting forums light up with practitioners frantically exporting data to Excel, second-guessing payment methods, and chasing down W-9 forms as the deadline approaches.
In episode 125, Alicia breaks down what you actually need to know, including who qualifies for a 1099 (and why small errors won’t hurt you), which payment methods trigger reporting in our fintech-heavy world, and the QuickBooks tools that eliminate hours of manual work.
Understanding 1099 Compliance
Before diving into QuickBooks tricks and automation, you need to understand what these forms actually accomplish, and what’s changing in 2026.
Essentially, the 1099 system exists because the IRS wants to verify that contractors report their income. When you pay another business for services, you’re telling the IRS about that payment. They match your report against what the contractor claims on their taxes, making sure nobody’s working under the table.
“Literally millions of dollars, if not billions of dollars, is wasted in lost productivity while we chase down W-9 forms and file all these forms and do all of our research just to make sure that everybody is on the up and up,” Alicia says, not holding back her frustration. “So it’s kind of a vicious cycle.”
What’s New for 2026
This year brings a significant addition with Form 1099-DA for digital asset transactions. The IRS is finally tracking cryptocurrency sales and income, attempting to bring crypto economics into the traditional tax framework.
The $600 threshold that’s been in place for decades stays the same this year, but relief is coming. The One Big Beautiful Bill raises this to $2,000 starting in 2027. As Alicia notes, “The vast majority of my small businesses and micro businesses probably wouldn’t even qualify and won’t need to do this at all next year.”
Who Gets a 1099?
The rules are simpler than many make them:
Send 1099s to:
- Self-employed individuals
- LLCs filing as sole proprietors
- Partnerships
- Attorneys (even if incorporated)
- Independent landlords (not property management companies)
Don’t send 1099s to:
- S Corps
- C Corps
- Property management companies
Remember to check beyond your expense accounts. Balance sheet items like prepaid expenses, leasehold improvements, and due to/from accounts might contain qualifying payments. And if one company pays on behalf of another, the company that received the service files the 1099.
The Accuracy Question
Fear of making small mistakes keeps practitioners up at night unnecessarily.
“If your 1099 is off by $100 or $200, nobody’s going to come knocking on your door,” Alicia says reassuringly. “The IRS is short staffed. They’re really not looking for $600 in revenue. But if you’re talking hundreds of thousands of dollars, then it’s a bigger concern.”
The IRS primarily cares whether contractors report income lower than their total 1099s. If someone receives $200,000 in 1099s but reports $250,000 in income, no red flags appear. Problems only arise when reported income falls below documented payments.
Alicia shares a cautionary tale about a cleaning service client who paid cleaners as contractors for 15 years despite warnings. “Sure enough, she got audited after 15 years. And it turns out that the IRS agreed with me that they really are employees, so she now has some fines to pay.”
W-9 Best Practices
The key to avoiding January panic is to collect W-9s immediately when hiring someone. Don’t wait to see if they’ll hit the threshold; just send it. And don’t pay until you receive it back.
If contractors ignore your requests, you have leverage. Threaten to withhold 24% of their payment for backup withholding. “That warning is usually enough to get them to reply,” notes Alicia. If they still won’t cooperate, file the 1099 anyway with a blank EIN. “Unfortunately that might trigger an audit for them, but if they’re not sending you a W-9, well, what are they hiding?”
One persistent problem is W-9 forms often come back filled incorrectly, especially from LLCs. The form should show information for the entity actually paying taxes, not a pass-through or disregarded entity. Many people put their personal name on line one and business name on line two backwards, creating confusion about their tax status.
Navigating the Payment Method Maze
Much of the 1099 confusion stems from uncertainty about which payments count. With the explosion of fintech platforms, determining what triggers reporting has become increasingly complicated.
The Foundation Rule
You send 1099s for payments from your bank account, including:
- Cash and checks
- Online bill pay
- ACH transfers
- Wire transfers
- Zelle
You don’t send them for credit or debit card payments. The merchant processors handle their own 1099-K forms.
The Fintech Gray Zone
PayPal, Venmo, and similar platforms create confusion. The determining factors are whether you use the business or personal version and whether you’re paying “friends and family” or for “goods and services.”
Alicia recommends asking two key questions:
- Does it charge a transaction fee? If yes, you likely don’t need a 1099
- Does it have its own bank balance? PayPal and Venmo do, so that’s another sign you’re off the hook.
Business versions of these platforms send their own 1099-K forms. However, merchant services use different thresholds: $20,000 and 200 transactions, maintained by the One Big Beautiful Bill. This creates a gap where payments between $600 and $20,000 via credit card aren’t reported by anyone, and that’s perfectly fine from a compliance standpoint.
For navigating the infinite fintech combinations, Alicia strongly recommends Jennifer Diamond’s 1099Problems website.
Material Reimbursements
How contractors invoice determines the treatment:
- When materials are wrapped into the service invoice, you include everything.
- When materials are itemized separately, you exclude materials and report services only.
- When materials are invoiced separately, you ignore them entirely.
“The IRS knows you’re paying them the full price for the whole service, and it’s up to the contractor to do their own deductions for their own material costs,” Alicia explains.
The Reference Number Secret
Alicia shares a “hot tip” most practitioners don’t know. QuickBooks expense forms have a reference number field that automatically excludes transactions from 1099 processing.
“You would think the payment method would be the thing that allows you to do the exclusion, but no. It doesn’t work that way,” she notes. Instead, enter “debit,” “card,” “Visa,” “MC,” “Chase,” “Discover,” “PayPal,” or “Amex” in the ref number field. The wizard recognizes these and excludes the transactions—a feature carried over from QuickBooks Desktop.
Mastering QuickBooks Online’s 1099 Tools
Despite QBO’s built-in capabilities, Alicia observes practitioners still asking which report to run in order to filter out for the $600 and for the payment processors. The tools exist, but many don’t know where to find them.
The Contractors Center Hub
The Contractors Center, located under Expenses and Bills (and under Payroll, if enabled), manages 1099-eligible vendors from start to finish. Any vendor with “track 1099” checked appears here automatically.
The standout feature is self-onboarding. Invite vendors via email to complete a digital W-9 through their QuickBooks account or the free QuickBooks Money app. The system captures everything, including their name, address, tax ID, entity type, and qualification status.
“Tell them to look for it because it looks like spam,” Alicia warns. “It just says QuickBooks needs your W-9 and bank info and who is going to click that?”
Payment Processing Options
The Contractors Center offers multiple payment methods, including:
- QBO Payroll subscribers: Contractors treated as employees at your per-employee rate
- Contractor-specific plan: $10.50 monthly for up to 20 contractors, $1.70 each additional
- QBO Bill Pay: Standard functionality
The 1099 Preparation Wizard
Access the wizard via “Prepare 1099” in the Contractors Center or the dedicated 1099 section under Expenses and Bills in the new navigation.
There are two approaches available: “Try Autofilled Forms,” which is an AI-powered automation, or “Prep My Own” for manual step-by-step control.
“I tried it this year and honestly they came up with the same information,” reports Alicia. Choose based on comfort level—automation for hands-off clients, manual for those wanting verification.
Custom Reports for Analysis
The wizard includes two reports: Accounts to Pay Vendors and Vendor Transactions. “I turn on the track 1099 status and then filter it so the status is on and the amount is greater than $600 instead of looking at the big list of all the payments for all the vendors,” Alicia says, explaining her workflow.
State Filing Complications
Some states participate in the Combined Federal and State Filing Program, and QBO handles both simultaneously. Others require separate filing through state websites.
Alicia’s particular frustration is that she’s located in Oregon. “it stinks for me because QuickBooks doesn’t export any kind of report that I can import into Oregon’s filing system. So I wind up having to type them all in by hand.”
Corrections After Filing
If you make an error, QBO allows corrections after IRS acceptance. Replace incorrect forms with $0, add forgotten contractors, or submit corrected amounts. Third-party platforms offer similar capabilities.
Your 1099 Action Plan
As Alicia emphasizes throughout the episode, the tools exist to make this process manageable. Stop exporting to Excel. Stop manually filtering. Use the automation that’s already there.
Looking ahead, the 2027 threshold increase to $2,000 will eliminate this requirement for many small businesses entirely. Until then, master these tools and workflows to transform 1099 season from a compliance nightmare into a streamlined process.
For an even deeper dive into 1099 filing, check out Alicia’s Payroll Perfection bundle, which includes QBO Payroll, QuickBooks Time, and payroll compliance training. And be sure to listen to the full episode for additional insights from Alicia’s week in “1099 Heaven.”
Alicia Katz Pollock’s Royalwise OWLS (On-Demand Web-based Learning Solutions) is the industry’s premier portal for top-notch QuickBooks Online training with CPE for accounting firms, bookkeepers, and small business owners. Visit Royalwise OWLS, where learning QBO is a HOOT!