What is a 1099 Vendor?

A 1099 vendor is a designation listed in each of the records in the vendor master file that is part of an accounting software package. If you designate a supplier as a 1099 vendor, the system will print a Form 1099 for the supplier as part of the 1099 batch processing that follows the end of the calendar year. The company then sends the resulting 1099 form to the supplier, which the supplier should use for tax filing purposes. The software should not print a Form 1099 for any supplier for which the company has issued cumulative payments for the full calendar year of less than $600.

An issuing business sends a copy of this report to the Internal Revenue Service (IRS). The intent of the 1099 vendor designation is to ensure that suppliers report the correct amount of income to the IRS for income tax reporting purposes.

The 1099 vendor designation should be applied to any supplier that has the following characteristics (this is a partial list):

An independent software vendor (ISV) is an individual or business that builds, develops and sells consumer or enterprise software. Although ISV-provided software is consumed by end users, it remains the property of the vendor. An ISV is also known as a software publisher. Techopedia explains Independent Software Vendor (ISV).
An Independent Software Vendor (ISV) is a business or an individual that builds, develops and sells consumer or enterprise software that is consumed by end users. In other words, an Independent Software Vendor is a company whose main function is to distribute its software. Independent Software Vendors are also known as Software Publishers.

One of the oldest IT companies in the world, IBM continues to be among the top software companies in the U.S. IBM has a market cap of $95.9B, a P/E ratio of 10.22, and a dividend yield of 6.48. In order to choose the right software partner for your business, it’s important to first understand the characteristics of a software partner relationship. In any relationship, any investment — business, love, real estate, and yes, software — going in with clear expectations of what you want from the process is a key to ultimately getting.

Professional services fees
Commissions paid to non-employees
Fees paid to independent contractors
Taxable fringe benefits for non-employees
Director's fees
Fish purchased for cash
Golden parachute payments

Generally, this designation is for a supplier entity that is not a corporation.

The best practice for designating a 1099 vendor is to have all suppliers fill out and submit a Form W-9, Request for Taxpayer Identification Number and Certification, before paying them. You can then infer from the Form W-9 what the proper designation should be.

It is also a good practice to have the Form W-9 updated on an annual basis, so that you continue to have the most recent mailing address on file for each supplier. Doing so always warns you of any organizational changes in a supplier; this is useful for updating the 1099 flag in the accounting software.

Related Courses

What Is Software Vendors

Optimal Accounting for Payables
Payables Management

Tax Forms

Early Release and Data Recognition Forms - These forms are considered final for software companies, with the exception of federal line references. The Department designs data recognition forms to automate document processing and improve overall accuracy and efficiency. Fields on these forms are set up on a 10 x 6 grid (10 characters to the inch and 6 lines to the inch) to assist software developers in creating substitute versions.

340b Software Vendors

Software Vendor Forms & Information

Guidelines for Substitute and Reproduced Tax Forms (Form 5629) - This is a set of guidelines that Software Vendors agree to follow when submitting forms for approval.
Form 4349 - Letter of Intent for Substitute and Reproduced Income Tax Forms
The Department's Electronic Filing Letter of Intent, Schemas and test documents are available through the Federal Tax Administration's State Exchange System. Please e-mail the Electronic Services section at elecfile@dor.mo.gov to request access.

What Is Software Vendor

File Specifications

Voucher Specifications (12-30-2020) - These are the specifications for all vouchers that can be reproduced by software vendors. You must follow the specifications for approval.

What Is Enterprise Software Vendors