Running a healthcare practice means working with a long list of vendors, contractors, service providers, and professionals throughout the year.
Then January arrives and suddenly the question becomes:
“Wait... which of these people need a 1099?”
The easiest way to make 1099 season less painful is to handle it throughout the year instead of trying to reconstruct twelve months of vendor information at the last minute.
Here are the areas healthcare practices should pay particular attention to.
1. Know which vendors may require a 1099
Generally, businesses must report certain payments of $600 or more made during the calendar year to nonemployees for services.
For a healthcare practice, that might include:
- Independent contractors
- IT consultants
- Cleaning or maintenance services
- Contract billing or coding specialists
- Professional consultants
- Attorneys and legal services
But there are exceptions, and the type of business receiving the payment matters.
For example, payments to many corporations are generally exempt from Form 1099 reporting, while payments for certain legal and medical services can have different rules.
That's why simply looking for every vendor paid more than $600 isn't enough.
2. Get the W-9 before you need it
This is probably one of the easiest year-end headaches to prevent.
When you begin working with a new vendor or contractor, request a completed Form W-9 before or when the relationship begins — not eleven months later when you're trying to prepare 1099s.
The W-9 gives you important information including the vendor's:
Legal name, business name, tax classification, address, and taxpayer identification number.
Without it, determining whether a 1099 is required becomes considerably more difficult.
A good bookkeeping process includes checking for missing W-9s throughout the year instead of discovering them all in January.
3. Don't assume every payment counts toward the $600
How you paid the vendor matters too.
Payments made by credit card and certain third-party payment networks are generally reported by the payment processor under separate reporting rules rather than being included on your Form 1099-NEC or 1099-MISC.
That means blindly running a report of everything paid to a vendor can result in incorrect reporting.
Your bookkeeping records should make it possible to determine both who was paid and how they were paid.
4. Review your vendor list before year-end
December is a much better time to discover that you're missing a W-9 than January 30.
Before year-end, review your vendor list and look for:
Missing W-9s. Incorrect vendor names. Missing tax classifications. Vendors approaching or exceeding reporting thresholds. Duplicate vendor records. Payments recorded under the wrong vendor.
This is also where clean bookkeeping makes an enormous difference.
If vendor transactions have been properly recorded throughout the year, preparing 1099s becomes a review process instead of a scavenger hunt.
5. Understand the January 31 deadline
For many businesses, Form 1099-NEC must generally be furnished to the recipient and filed with the IRS by January 31.
Waiting until the last week of January to begin reviewing vendors leaves very little time to track down missing information or correct bookkeeping errors.
The better approach is to begin reviewing your records before year-end so January is primarily about verification and filing.
6. Don't forget about backup withholding
A missing W-9 isn't always something that can simply remain unresolved indefinitely.
In certain circumstances, a business may be required to withhold 24% federal backup withholding from reportable payments when the payee fails to provide a correct taxpayer identification number.
This is another reason HPS encourages clients to collect W-9s before paying new vendors whenever possible.
1099 preparation starts with good bookkeeping
The actual filing of a 1099 isn't usually the difficult part.
The difficult part is getting to January and discovering that vendor information is missing, payments were categorized incorrectly, or nobody knows whether a contractor was paid by check, ACH, or credit card.
Good bookkeeping throughout the year solves much of that problem before filing season ever arrives.
At HPS Bookkeeping, we help healthcare practices maintain organized vendor records and clean books throughout the year so year-end doesn't become an unnecessary scramble.