As the 1099 filing season approaches, rising form volumes, shifting IRS requirements, and tighter audit scrutiny are colliding with outdated, manual processes—leaving accounts payable teams stretched thin and exposed to risk, according to a new report from Avalara.
The 1099 Readiness Report, which polled 1,000 AP professionals across the U.S. about key challenges they face heading into 1099 season, revealed that despite recognizing automation and artificial intelligence as the future of tax compliance, most AP leaders continue to rely on manual methods that consume time, increase costs, and invite errors.
The Avalara report found that only 24% of businesses have fully automated tax compliance, while 22% still rely on partial or entirely manual processes. As a result, many AP teams remain burdened by spreadsheets and manual data entry at a time when speed, accuracy, and governance are critical.
“Manual 1099 reporting is slow, labor-intensive, and increasingly outdated. New income types, form variations, and changing reporting thresholds have made compliance a moving target,” the report states. “The result: AP teams are spending valuable time wrestling with spreadsheets instead of focusing on strategic financial priorities.”
But momentum for modernization is growing, with 78% of AP teams planning to invest in compliance technology within the next year.
“We’re entering a new era of tax compliance, and the demands of 1099 reporting have outgrown manual processes,” Kevin Halverson, general manager of accelerator businesses at Avalara, said in a statement on Dec. 4. “Agentic AI is transforming how finance teams operate by cutting errors, speeding up workflows, and giving businesses the confidence to file accurately and on time.”
Each January, millions of companies race to prepare and file 1099 forms before IRS deadlines. Every inaccurate form or delayed submission increases the risk of penalties, additional scrutiny, and strained vendor relationships.
“Incomplete or incorrect data is now the leading source of compliance risk,” the Avalara report says. “For larger enterprises filing thousands of 1099s annually, even a 1% error rate can trigger significant fines or rework costs. Automated data verification tools can dramatically reduce these errors and ensure audit-ready accuracy.”
As teams prepare for the busiest filing period of the year, the report highlights five key insights shaping the upcoming 1099 season:
- 1099 season is a major resource drain: U.S. companies spend an average of 40 hours each January on 1099 compliance. For large organizations or those filing more than 10,000 forms, the workload often surpasses 100 hours.
- Compliance complexity is fueling uncertainty: Unclear IRS communication continues to create confusion, with 31% of respondents urging agencies to provide more timely and detailed guidance on requirements and deadlines.
- Data quality is an ongoing pain point for AP professionals: Accurate reporting relies on strong data quality. Collecting vendor information (15%) and resolving Taxpayer Identification Number (TIN) and name mismatches (13%) remain the most significant obstacles for AP teams.
- Leaders show high interest in automation, but adoption still lags: Nearly 78% of AP leaders plan to invest in compliance solutions in the next 12 months, and 71% say that AI innovation will influence their technology decisions. However, only one in four businesses have fully implemented an end-to-end automated system.
- Agentic AI is redefining tax compliance: Manual processes expose organizations to unnecessary risk and limit operational efficiency. Agentic AI reduces this burden by automating repetitive tasks, improving data integrity, and supporting smooth, compliant filing.
“With available automation and agentic AI tax and compliance solutions, businesses can confidently move from compliance chaos into an era of confidence, speed, and control—turning the 1099 season from a burden into a breakthrough for finance and accounts payable teams,” the Avalara report says.
Methodology: The 2025 Avalara 1099 Readiness Report was conducted by Censuswide among 1,000 accounts payable professionals in the U.S. aged 18 and older. The data was collected between Oct. 31 and Nov. 11, 2025. Censuswide abides by the Market Research Society Code of Conduct and ESOMAR principles and is a member of the British Polling Council.
Photo credit: MarioGuti/iStock
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