Understanding 1099s: What Every Restaurant Owner Needs to Know

As a restaurant owner, you work with a variety of vendors, independent contractors, and service providers to keep your business running smoothly. Whether it's a freelance marketer helping with promotions, a repair technician fixing kitchen equipment, or a landlord collecting rent, some of these payments may require IRS reporting via Form 1099-NEC or 1099-MISC.

Failing to issue the required 1099s can lead to IRS penalties, putting an unnecessary financial strain on your restaurant. Understanding the requirements and staying compliant will help you avoid these issues. Below, we’ll cover who needs a 1099, key deadlines, common mistakes to avoid, and best practices to streamline the process.

Who Needs a 1099?

The IRS requires businesses, including restaurants, to issue 1099 forms for certain payments made to individuals and businesses that are not employees. The two most common forms restaurants will deal with are:

Form 1099-NEC (Nonemployee Compensation)

This form is required when you pay $600 or more to independent contractors or service providers during the tax year. These payments must be reported if the recipient is:
✅ A sole proprietor, partnership, or LLC taxed as a sole proprietor
✅ Paid via cash, check, or direct deposit (NOT credit card or third-party payment apps)

Examples of Who Should Receive a 1099-NEC:

• Freelance marketing consultants – If you hired someone to manage your social media, design a website, or run ads

• Contracted maintenance workers – A plumber, electrician, or kitchen repair technician who isn’t employed by a larger company

• Special event chefs or bartenders – If they work on a contract basis for catering or private events

• Cleaning services – If the cleaning company is not incorporated (i.e., an LLC or sole proprietor)

Form 1099-MISC (Miscellaneous Income)

This form is used to report other types of payments, including:
✅ Rent payments – If you pay rent directly to a landlord (but NOT if paid to a property management company)
✅ Prize or award payments – If you run promotions and pay a cash prize to a contest winner
✅ Attorney fees – Any legal fees paid of $600 or more, regardless of the attorney’s business structure

Exceptions: Payments That Do NOT Require a 1099

🚫 Payments made via credit card, PayPal, or other third-party processors (These are reported by the processor on Form 1099-K)
🚫 Payments to corporations or LLCs taxed as corporations (except attorneys)

Key Deadlines & IRS Filing Requirements

Missing deadlines for 1099s can result in costly IRS penalties. Here’s what restaurant owners need to know:

📅 January 31 – 1099-NEC forms must be sent to recipients and filed with the IRS
📅 February 28 – Paper-file deadline for 1099-MISC
📅 March 31 – E-filing deadline for 1099-MISC

What Happens If You Miss the Deadline?

Late filing penalties range from $50 to $280 per form, depending on how late you file:

• 1-30 days late: $50 per form

• 31 days to August 1: $110 per form

• After August 1 or not filed: $280 per form

If the IRS determines that you intentionally failed to file, the penalty can exceed $500 per form with no maximum limit.

Avoiding Common 1099 Mistakes

❌ Not Collecting W-9 Forms from Vendors
✅ Before making payments, always request a Form W-9 from new vendors and contractors. This form provides their tax classification, TIN (Taxpayer Identification Number), and business structure, helping you determine if a 1099 is required.

❌ Misclassifying Workers as Independent Contractors
✅ Be sure workers should receive a 1099-NEC and not a W-2 (employee form). The IRS has strict guidelines on worker classification, and misclassifying employees can lead to back taxes and penalties.

❌ Forgetting to Track Payments Throughout the Year
✅ Keep vendor records organized in your accounting software to ensure you can easily identify who requires a 1099 at year-end.

❌ Assuming Credit Card Payments Need a 1099
✅ If you paid a contractor via credit card, PayPal, or Square, do not issue a 1099—the payment processor will handle reporting.

How to Streamline the 1099 Process for Your Restaurant

✅ Use Accounting Software – Platforms like QuickBooks Online and Restaurant365 can track payments and generate 1099 forms automatically.

✅ Automate Vendor Records – Store all W-9s digitally and update payment records regularly to avoid last-minute filing stress.

✅ Set Calendar Reminders – Schedule a review of contractor payments in December to ensure you have all necessary forms before the January deadline.

✅ Consult an Accounting Professional – A restaurant accountant can help identify required 1099s, file correctly, and ensure compliance—saving you time and avoiding penalties.

Final Thoughts

1099 compliance is a critical part of running a restaurant, and failing to file correctly can lead to costly IRS penalties. By tracking payments, collecting W-9s early, and using accounting tools, you can make tax season much smoother.

If you need help managing your restaurant’s 1099 filings or overall financials, ACE’d Accounting Solutions provides expert support to ensure everything is handled accurately and on time. Contact us today to keep your restaurant compliant and financially strong.