1099 Processing Companies: What They Do & How to Compare Them [2025]

The IRS requires businesses to file over 1.5 billion information returns annually, with Form 1099 accounting for a significant portion of this compliance workload. As tax regulations become more complex and penalties for errors increase, many organizations turn to specialized 1099 processing companies to handle this critical responsibility.

But what exactly do these companies do? How do they differ from each other? And most importantly, how can you determine which one is right for your organization?

This guide breaks down the 1099 processing industry, explains what these companies actually provide, and gives you a framework for comparing your options based on what matters most to your business.

What Do 1099 Processing Companies Actually Do?

1099 processing companies specialize in managing the entire lifecycle of tax form reporting—from data collection through final IRS acceptance and recipient distribution. These companies exist because 1099 compliance has become increasingly complex, with multiple form types, varying state requirements, strict deadlines, and severe penalties for mistakes.

Core Services Provided

Most 1099 processing companies offer some combination of these services:

Data Management and Validation Companies receive your raw payee data in various formats and transform it into IRS-compliant tax forms. This includes validating Tax ID numbers, checking for formatting errors, identifying missing information, and ensuring data matches IRS specifications.

Form Generation They create the actual 1099 forms (1099-NEC, 1099-MISC, 1099-INT, etc.) from your data, applying current tax year rules and IRS specifications. This includes populating all required boxes, calculating totals, and formatting forms for printing and electronic filing.

IRS Electronic Filing As authorized IRS e-file providers, these companies transmit your forms directly to the IRS through secure electronic channels. They handle all technical requirements, monitor transmission status, and resolve any rejection issues with the IRS.

Recipient Distribution Processing companies distribute copies to your payees through printing and mailing physical forms, providing secure online access via web portals, or delivering encrypted PDF copies via email.

State Reporting Many companies handle state-level 1099 reporting requirements, which vary dramatically by state. This includes direct state filing where required and participation in the Combined Federal/State Filing (CF/SF) program.

Compliance Support Beyond just processing forms, many companies provide expertise on changing regulations, deadline management, penalty avoidance strategies, and answers to compliance questions.

Post-Filing Corrections When errors are discovered after filing, these companies handle amended returns, correction classification (Type 1 vs Type 2), IRS retransmission, and revised recipient copies.

Why Organizations Use 1099 Processing Companies

The fundamental value of using a 1099 processing company comes down to three factors:

Risk Reduction: Professional processing dramatically reduces errors that lead to IRS penalties, which can range from $60 to $310 per form depending on how late you discover the mistake.

Time Savings: Outsourcing eliminates hundreds of hours of internal labor—data formatting, form generation, printing, mailing, e-filing setup, recipient inquiries, and correction processing.

Expertise Access: Tax regulations change constantly. Processing companies stay current on requirements so you don’t have to dedicate staff to tracking IRS updates, state rule changes, and deadline modifications.

How 1099 Processing Companies Differ From Each Other

Not all processing companies operate the same way. Understanding these key differences helps you identify which type aligns with your needs.

Service Scope: Limited vs. Comprehensive

Limited Service Providers focus primarily on e-filing. You prepare the forms, and they just transmit to the IRS. This works if you have strong internal capabilities but need help with the technical filing piece.

Comprehensive Service Providers handle everything from data intake through final distribution. You upload raw data, and they manage the rest. This is ideal for organizations wanting to fully outsource the function.

The distinction matters because it affects both pricing and your internal workload. Make sure you understand exactly what’s included versus what you’ll still handle yourself.

Infrastructure: Provider-Owned vs. Outsourced Operations

Some 1099 processing companies own and operate their entire infrastructure—data centers, printing facilities, mail operations, and customer support—while others outsource portions of these functions to third parties.

Provider-owned operations (where the processing company owns their facilities) typically offer:

Better quality control
Faster turnaround times
More accountability when issues arise
Consistent service quality

Outsourced operations may provide:

Lower costs (potentially)
Scalability for extremely high volumes
But introduce additional variables and potential quality inconsistencies

For example, ts1099 operates an in-house production facility in Chicago with dedicated printing equipment and mail operations, which provides direct oversight of the entire process. When evaluating companies, ask specifically whether they own their facilities or contract them out.

Technology Approach: Modern vs. Legacy

The technology platform matters significantly for user experience and efficiency.

Modern Cloud-Based Platforms:

No software installation required
Access from anywhere via web browser
Automatic updates included
Mobile-responsive interfaces
API integration capabilities
Real-time status visibility

Legacy Systems:

May require software downloads
Limited to specific devices
Manual updates needed
Less intuitive interfaces
Minimal integration options

Technology also affects how quickly you can make changes, view form status, run reports, and handle corrections. Test the actual platform during demos—don’t just look at screenshots.

Pricing Models: Per-Form vs. Subscription vs. Flat Rate

Pricing structures vary widely across 1099 processing companies:

Per-Form Pricing: You pay based on the number of forms filed. Rates typically decrease at volume tiers. This model is straightforward and scales with your actual usage.

Subscription Models: Annual or monthly fees regardless of volume, sometimes with form limits. This can work well if you have predictable filing needs.

Flat Rate Packages: Fixed price for a certain volume range (e.g., up to 500 forms). Simple but may not be cost-effective if you’re at the low or high end of the range.

Hidden Cost Areas to Watch:

Correction charges (should be included)
Customer support fees (should be included)
Recipient portal access fees
Platform or subscription fees
Minimum order requirements

ts1099 uses straightforward per-form pricing with no subscription fees and unlimited corrections included. This transparency matters—make sure you understand the total cost, not just the advertised base rate.

Support Quality: Domestic vs. Offshore

Customer support quality varies dramatically based on where support teams are located and how they’re compensated.

U.S.-Based Support Teams:

Native English speakers
Better understanding of U.S. tax concepts
Available during your business hours
Higher service quality typically

Offshore Support:

Lower cost structure
Potential communication barriers
May lack deep tax expertise
Time zone challenges

Test support responsiveness before committing. Call with questions during your evaluation to see how quickly and thoroughly they respond.

Industry Experience and Depth

The breadth and depth of a 1099 processing company’s industry experience can significantly impact their ability to handle your specific compliance needs. Some providers have limited experience serving only a few sectors, while others have extensive track records across multiple regulated industries.

Why industry experience matters:

Different sectors have unique compliance requirements and filing complexities
Regulated industries (healthcare, financial services, legal) require deeper understanding of confidentiality and security standards
Companies serving diverse industries have encountered more edge cases and built more robust systems
Cross-industry experience means proven adaptability to different organizational structures and workflows

What to look for in industry experience:

Companies with deep, multi-industry experience bring several advantages. They understand the nuances of HIPAA compliance in healthcare, the complexity of investment reporting in financial services, the documentation requirements in legal and insurance sectors, and the high-volume contractor management in property management. This breadth means they’ve solved problems similar to yours many times before.

For example, ts1099 is powered by Tab Service Company, which has served clients across healthcare, financial services, insurance, legal, government, higher education, and property management since 1960. This 65-year track record across multiple regulated industries means the team has deep expertise in handling sensitive data, complex compliance requirements, and industry-specific filing scenarios. Rather than focusing on just one sector, this cross-industry experience provides both the specialized knowledge needed for regulated industries and the flexibility to adapt to unique business situations.

When evaluating providers, ask about their experience in your specific industry and what percentage of their clients operate in regulated sectors. Companies with substantial regulated industry experience typically have more mature compliance processes, stronger security protocols, and better understanding of audit requirements—all of which benefit your organization regardless of your sector.

Key Comparison Criteria: What Actually Matters

When evaluating different 1099 processing companies, focus on these factors that have the biggest impact on your experience and outcomes.

1. Accuracy and Error Prevention

This should be your top priority. Errors result in penalties, correction work, and recipient confusion.

What to evaluate:

Do they employ human data analysts to review files, or rely solely on automated checks?
What’s their error rate or rejection rate with the IRS?
How do they validate Tax ID numbers?
What quality control processes exist?
Can they provide references regarding accuracy?

Red flag: Companies that can’t articulate their quality control process or show you what validation they perform.

2. IRS Authorization and Filing Capabilities

Not all companies can file all form types or in all situations.

Verify:

IRS-authorized e-file provider status (and since when)
Which specific 1099 forms they can file (NEC, MISC, INT, DIV, etc.)
Federal filing capabilities
Combined Federal/State Filing (CF/SF) program participation
Direct state filing for non-CF/SF states
Experience with your specific filing requirements

Some companies are authorized for certain forms but not others. Make sure they can handle your complete filing needs.

3. Data Handling Flexibility

Your data probably doesn’t perfectly match their preferred format. How flexible are they?

Look for:

Multiple accepted file formats (Excel, CSV, ASCII, database exports)
Ability to handle data from multiple sources
Tolerance for non-standard data structures
Data cleanup and transformation services
Previous experience with data from your accounting system

The best companies work with your data as-is rather than forcing you to extensively reformat everything.

4. Security Credentials and Practices

You’re trusting them with Social Security numbers and sensitive financial data.

Non-negotiables:

SOC 2 Type II certification
Recent audit report
Encrypted data transmission and storage
Secure facility access controls
Regular third-party penetration testing
Clear data retention and destruction policies
Cyber insurance coverage

Ask to see their SOC 2 report. If they won’t share it (under NDA), that’s a major red flag.

As an industry standard, ts1099’s entire organization undergoes annual SOC 2 Type II audits by Plante Moran, plus regular penetration testing by independent security consultants. This comprehensive approach should be baseline, not exceptional.

5. Deadline Management and Processing Time

Missing deadlines results in penalties. Processing time directly affects your internal deadlines.

Key questions:

How far in advance of IRS deadlines must you submit data?
What’s their turnaround time from data receipt to form approval?
Do they provide deadline reminders?
What happens if you’re running late—can they accommodate rush processing?
Have they ever missed a deadline for clients?

Build in buffer time, but understand their processing timeline to plan accordingly.

6. Correction Process and Costs

You will need to make corrections. How painful and expensive will that be?

Evaluate:

Are corrections included or charged separately?
Is there a limit on number of corrections?
How do you submit corrections (online portal, email, phone)?
How quickly are corrections processed?
Does the company handle IRS retransmission automatically?
Can you view version history of forms?

Many companies charge $5-15 per correction, which adds up quickly. Others include unlimited corrections in base pricing. This can be a significant cost differentiator over time.

7. Recipient Experience and Options

Your payees will interact with the forms and potentially the company’s systems.

Consider:

Quality of printed forms (pressure seal vs. regular envelope)
Online portal access for recipients
Email delivery with encryption
SSN/TIN masking for security
Multi-year form access
Recipient support (who handles their questions—you or the company?)

A poor recipient experience reflects on your organization, even if you outsourced the processing.

8. Reporting and Visibility

You need visibility into status, compliance, and historical data.

Useful reporting features:

Real-time filing status dashboard
Form preview before final approval
Summary reports by form type, state, amount
Historical access to prior years
Audit trail of all changes
Export capabilities for your records

Some companies provide excellent transparency; others are a “black box” until forms are filed.

9. Scalability and Volume Handling

Can they handle your growth? What if you acquire another company?

Assess:

Current client size range
Largest filing they’ve handled
System capacity and processing infrastructure
Volume discount tiers
Ability to add forms mid-season
Consolidation capabilities for multiple entities

You don’t want to switch providers in two years because they can’t scale with you.

10. Contract Terms and Flexibility

Read the fine print before signing.

Watch for:

Multi-year commitments vs. annual contracts
Auto-renewal terms
Cancellation policies and notice periods
Data portability (can you get your data if you leave?)
Service level agreements (SLAs)
Liability limitations
Price increase caps

Avoid getting locked into long-term contracts with unfavorable terms.

Comparison Framework: Build Your Evaluation Matrix

Here’s a practical framework for comparing multiple companies:

Step 1: Create Your Requirements List

Categorize requirements as:

Must-Have: Non-negotiable requirements
Important: Significantly impacts decision
Nice-to-Have: Helpful but not critical

Step 2: Request Detailed Information

From each candidate, obtain:

Complete pricing breakdown
Service scope documentation
Security certifications
Client references (at least 3)
Sample contract
Technology demo access

Step 3: Build Comparison Spreadsheet

Create columns for each company and rows for:

Service Capabilities:

Forms supported
State filing coverage
Data formats accepted
Printing/mailing included
Recipient portal provided
Corrections included

Quality & Security:

SOC 2 certification status
Data analyst review
Error rate or guarantees
IRS authorization date
Infrastructure (in-house vs. outsourced)

Technology:

Platform type (cloud/desktop)
User interface quality
Integration capabilities
Mobile access
Reporting features

Support:

Support location (US/offshore)
Hours of availability
Response time commitments
Dedicated account manager
Training provided

Pricing:

Per-form cost (at your volume)
Additional fees
Correction charges
Annual contract value
Payment terms

Contract Terms:

Contract length
Cancellation policy
Auto-renewal
Price increase terms

Step 4: Weight Your Criteria

Not all factors matter equally. Assign weights based on your priorities:

If accuracy is paramount, weight that heavily
If budget is tight, emphasize total cost
If you lack internal expertise, prioritize support quality

Step 5: Score Each Company

Rate each company on your criteria (1-5 scale), multiply by weights, and total scores. This quantifies your qualitative assessment.

Step 6: Check References Thoroughly

For your top 2-3 candidates, speak with their current clients:

Questions to ask references:

How long have you used this company?
What’s your annual filing volume?
Have you experienced any errors or issues?
How responsive is their support?
Would you choose them again?
What do you wish you’d known before signing?
Any unexpected costs or problems?

References reveal real-world experience beyond marketing claims.

Special Scenarios: Which Companies Fit Best

Different situations call for different provider types:

First-Time Outsourcers

Best fit: Companies with strong customer support, detailed onboarding processes, and simple technology. You need hand-holding through the first year.

Watch for: Providers that assume you’re already an expert. Look for “we’ll guide you through it” not “just upload your file.”

High-Volume Filers (5,000+ Forms)

Best fit: Established companies with proven high-volume infrastructure, dedicated account management, and custom workflow options.

Watch for: Small providers who may not have the capacity or systems to handle your volume reliably.

Multi-Location Organizations

Best fit: Companies experienced with data aggregation from multiple sources, consolidated reporting, and location-based analysis.

Watch for: Rigid data format requirements that make consolidation difficult.

Tight Budget Constraints

Best fit: Per-form pricing with no setup fees, included corrections, and transparent pricing. Avoid subscription models if your volume is low.

Watch for: “Too good to be true” pricing that doesn’t include essentials like corrections or support.

Complex Filing Needs

Best fit: Full-service companies with deep expertise, human data analysts, and experience with unusual situations.

Watch for: Budget providers relying only on automated processing who can’t handle complexity.

Switching from Another Provider

Best fit: Companies with strong data migration support, parallel processing options (running both providers for one year), and experience with transition challenges.

Watch for: Providers who minimize transition complexity—it’s real, and they should acknowledge and plan for it.

Common Mistakes When Choosing a Processing Company

Avoid these pitfalls that often lead to poor provider selection:

Mistake 1: Choosing Based Solely on Price The cheapest option often becomes the most expensive when you factor in errors, penalties, hidden fees, and internal time fixing problems.

Mistake 2: Not Testing the Technology Marketing screenshots look great. The actual user experience may be terrible. Always get hands-on platform access before committing.

Mistake 3: Ignoring Security Credentials “We’re very secure” isn’t good enough. Verify SOC 2 certification and review the actual audit report. Data breaches are catastrophic.

Mistake 4: Failing to Check References Every company can create impressive marketing materials. References tell you what it’s really like to be their client.

Mistake 5: Overlooking Support Quality Tax season is stressful. Poor support when you need urgent help creates serious problems. Test responsiveness before signing.

Mistake 6: Not Reading the Contract Auto-renewal terms, cancellation policies, and liability limitations can trap you in bad relationships. Read everything carefully.

Mistake 7: Choosing a Generalist When You Need a Specialist If you have unique industry requirements (healthcare, property management, higher ed), specialized providers may serve you better.

Mistake 8: Ignoring Scalability Choose a provider that can grow with you. Switching costs (time, risk, expense) make frequent changes painful.

Red Flags That Should Make You Walk Away

Some warning signs indicate you should cross a company off your list immediately:

No SOC 2 Certification: If they’re not willing to undergo independent security auditing, they’re not taking data security seriously enough.

Vague About IRS Authorization: Every legitimate e-file provider can show their IRS authorization letter. If they’re evasive, they may not be properly authorized.

No Current Client References: Established companies should easily provide 3-5 references. If they can’t or won’t, that’s concerning.

High-Pressure Sales Tactics: Being pushed to sign immediately without time to evaluate is a major red flag. Good companies are confident you’ll choose them after proper evaluation.

Unwillingness to Show Technology: If they won’t give you platform access during evaluation, the technology probably isn’t very good.

Offshore Support Only: For U.S. tax compliance, U.S.-based support is essential. Language barriers and tax knowledge gaps create serious problems.

Correction Fees Are Excessive: Some companies charge $20+ per correction, turning what should be a normal process into a profit center.

Can’t Explain Their Process: If they can’t clearly articulate how they process your data, validate accuracy, and handle errors, they probably don’t have robust processes.

The Decision Timeline

Allow adequate time for this important decision:

3-4 Months Before Filing Season:

Research companies
Define requirements
Request proposals

2-3 Months Out:

Schedule demos
Check references
Review contracts

6-8 Weeks Out:

Make final decision
Sign contract
Begin onboarding

4-6 Weeks Out:

Complete implementation
Upload test data
Train your team

2-3 Weeks Out:

Upload production data
Review and approve forms
Allow buffer for any issues

Starting early prevents rushed decisions and gives you time to properly evaluate options.

Questions to Ask During Company Demos

Use your demo time strategically to assess each company:

About Their Company

How long have you been processing 1099s?
How many forms do you process annually?
What’s your typical client size/industry?
How many clients do you serve?
What’s your client retention rate?

About Their Process

Walk me through what happens after I upload data
Who reviews my file—software only or actual people?
What happens if my file has errors?
How do you handle IRS rejections?
What’s your average turnaround time?

About Technology

Can I see your platform in action? (Ask to upload test data)
How do I track filing status?
What reporting is available?
Does your system integrate with [your accounting software]?
Is there a mobile app or mobile-responsive interface?

About Support

Where is your support team located?
What are your support hours?
How quickly do you typically respond to inquiries?
Do I get a dedicated account representative?
Is support included or is there an additional fee?

About Pricing

What’s your pricing for my volume?
Are there any additional fees beyond per-form pricing?
How much do corrections cost?
What’s included in your base price?
Are there volume discounts if I exceed my estimate?

Making the Final Choice

After completing your evaluation, use this decision framework:

Eliminate Disqualifiers

Remove any company with:

Missing must-have capabilities
Security concerns
Poor references
Unacceptable contract terms

Score Remaining Candidates

Using your weighted criteria, calculate scores objectively.

Consider Intangibles

Sometimes the data doesn’t capture everything:

Did you feel confident in their expertise?
Was the sales process professional and transparent?
Do you trust them with your sensitive data?
Could you see yourself working with them for years?

Validate with Your Team

Get input from everyone who will use the system:

Accounting team (will use platform regularly)
IT (integration and security perspective)
Finance (budget and contract review)
Management (strategic fit)

Make the Decision

Choose the company that best balances:

Capability (can they do what you need?)
Quality (will they do it well?)
Cost (is the value there?)
Fit (are they right for your organization?)

After You’ve Chosen: Implementation Success

Selecting the right company is only half the battle. Successful implementation requires:

Clear Communication: Designate a single point person on your end and theirs for all communication.

Realistic Timeline: Don’t wait until the last minute. Allow adequate time for setup, testing, and review.

Clean Data: The better your data quality going in, the smoother the process. Consider a data cleanup project before your first filing.

Testing: Submit test data well before your actual deadline to identify and resolve any issues.

Training: Ensure everyone who will use the system receives proper training.

Documentation: Keep detailed records of your first filing to make next year easier.

Long-Term Partnership Management

Once you’ve implemented with a company, maintain a healthy partnership:

Annual Review: Assess their performance each year. Are they meeting expectations? Have costs increased unreasonably?

Stay Engaged: Don’t disappear after filing. Attend their training webinars, read their regulatory updates, and stay informed.

Provide Feedback: Let them know what’s working well and what could improve. Good companies want this input.

Plan Ahead: Don’t scramble each year. Schedule your filing prep 2-3 months in advance.

Monitor Alternatives: Even if you’re happy, keep an eye on the market. New technologies and companies emerge that might serve you better.

The Bottom Line

1099 processing companies exist to reduce your compliance risk, save your time, and provide expertise you don’t have in-house. The right company becomes a trusted partner that makes tax season significantly less stressful.

Choosing that company requires looking beyond marketing claims to evaluate actual capabilities, security practices, technology, and support quality. Take the time to thoroughly compare your options using objective criteria.

The difference between an excellent processing company and a mediocre one is measured in hours saved, errors prevented, and peace of mind achieved. Make this decision carefully—it affects your organization every tax season for years to come.

Looking for a 1099 processing company that checks all the boxes? ts1099 combines advanced technology with expert human oversight. Our data analysts review every file, our in-house production facility ensures quality printing and mailing, and we include unlimited corrections at no extra charge. We’ve been an IRS-authorized e-file provider since 2005, and our entire organization is SOC 2 Type II compliant.

Explore our capabilities or contact us to discuss your specific filing requirements.