Your Essential Year-End Guide to 1099 and W-2 Preparation for Small Businesses

As the year winds down and the holiday season kicks into full gear, it’s the perfect time to make sure your business is ready for year-end tax reporting. Whether you work with independent contractors, employees, or both, proper preparation now can save you money, stress, and potential IRS penalties later.

This guide walks you through everything you need to know about W-2 reporting, 1099 filing requirements, W-9 collection, and end-of-year payroll best practices to keep your business fully compliant.

1099-NEC Filing Requirements for 2025

If your business paid an independent contractor $600 or more during the 2025 tax year for services (not products) and that contractor is not a corporation, you are required to issue a Form 1099-NEC.

1099-NEC Deadline

All 1099-NEC forms must be e-filed by January 31, 2026.

The IRS now requires e-filing for most businesses due to the new 10-form threshold across all information returns. Paper filing is no longer an option for most employers.

IRS Penalties for Late or Missing 1099s

If your forms are late, incorrect, or missing, penalties range from:

• $60 to $340 per form, depending on how late the form is filed

• $680 per form if the IRS determines you intentionally disregarded filing requirements

These penalties add up quickly — especially for businesses that work with multiple contractors.

Why Collecting W-9s Is Essential

The easiest way to avoid late filings and incorrect information is to collect a W-9 before making any payment. This ensures you have the contractor’s correct:

• Legal name

• Address

• Tax Identification Number (TIN or SSN)

• Entity classification

Pro Tip:

Make submitting a W-9 part of your onboarding or contracting process.
No W-9 = No payment. Period.

What If a Contractor Refuses to Provide Their W-9?

It’s rare, but when it happens, the IRS has very clear rules:

Your Requirements

• Document every request you make for the W-9

• Withhold 24% backup withholding until the W-9 is provided

  • Failure to withhold may result in a $500 penalty for your business

• Still file the 1099 by the deadline

  • Write “REFUSED” on the paper form or

  • Use 000000000 for the TIN if filing electronically

The contractor may also face penalties for refusing to provide this information.

Best Practice

Do not issue payment until you receive a completed W-9.
It eliminates backup withholding issues and protects you from penalties.

Make Sure Your Books Are Year-End Ready

To file accurate 1099s, your accounting must be complete through December 31st. This includes:

• Categorizing contractor payments correctly

• Ensuring vendor totals are accurate

• Confirming payments qualify as 1099-reportable

If your books are behind, a year-end cleanup service can get you back on track before filing deadlines hit.

How to E-File Your 1099 Forms

Because the IRS requires electronic filing for most employers, here are your main options:

Option 1: DIY 1099 E-Filing

Approved platforms include:

• efilemyforms.com

• Tax1099.com

These typically cost $4–$7 per form, with volume discounts when filing multiple forms.

Option 2: Let Ratliff Accounting & Tax Handle It

For $15 per form, we’ll take care of:

• Preparing your 1099-NEC forms

• E-filing them with the IRS (required)

• Mailing paper copies to your contractors

For new 1099 clients, there is a one-time $100 setup fee.

Outsourcing saves time, eliminates guesswork, and ensures full compliance with updated IRS rules.

W-2 Year-End Review: What Employers Need to Know for 2025

While 1099s get a lot of attention this time of year, employers also need to ensure their W-2 reporting is accurate. Under the latest tax legislation:

• You do not need to include eligible overtime and tip amounts directly on the W-2 for 2025

• You are required to provide a separate report to employees detailing their qualifying overtime and tip data

Employees will use this report to claim applicable savings on their personal tax returns.

If you’re unsure how to generate this report, our team can help.

Need Help With 1099 or W-2 Preparation?

Year-end reporting doesn’t have to be stressful. Whether you need:

• Help collecting W-9s

• A year-end bookkeeping cleanup

• Full-service 1099 e-filing

• Support generating overtime and tip reports

• Guidance on W-2 compliance requirements

We’re here to help you stay organized, compliant, and ready for tax season.

Contact Ratliff Accounting & Tax today — your favorite nosey accountants who keep tabs so you don’t have to.