What Is a 1099-NEC and Who Has to File One?
Sam's List Editorial | 2026-07-30
A Form 1099-NEC is an information return used to report nonemployee compensation. If you pay an independent contractor, freelancer, or other non-employee for services in the course of your trade or business, and the total for the year reaches the reporting threshold, you generally file a 1099-NEC reporting that amount to both the recipient and the IRS.
That is the short answer. The details are where people get in trouble, and one of them changed for 2026.
Who Has to File a 1099-NEC
Three conditions generally have to be met at once.
You made the payment in the course of a trade or business. This is the condition most people miss. Personal payments do not trigger reporting. Paying a plumber to fix the sink at your house is not reportable. Paying the same plumber to fix the sink at your rental property or your office generally is, because that payment is connected to a trade or business. Nonprofits and government entities are treated as being engaged in a trade or business for this purpose.
The payment was for services performed by someone who is not your employee. That includes independent contractors, freelancers, gig workers, consultants, and generally attorneys. Employees get a W-2 instead, and paying a worker on a 1099 does not by itself make them a contractor. Classification depends on the facts of the working relationship, and misclassification is a separate and more expensive problem than a missed information return.
The annual total reached the threshold. For payments made on or after January 1, 2026, the reporting threshold rose from $600 to $2,000, and the threshold is indexed for inflation for years after 2026. The $600 threshold still applies to payments made during 2025, which are reported on forms filed in early 2026. This is the first increase to that figure in decades, so a lot of published guidance and a lot of accounting software defaults still assume $600. Confirm the current-year figure before you rely on it.
There is a separate rule with no dollar threshold: if you are required to backup withhold from a payment, the payment is generally reportable regardless of amount.
What Is Not Reported on a 1099-NEC
The exclusions matter as much as the rule.
Payments to corporations, including S corporations and most LLCs that have elected corporate treatment, are generally excluded. The main exception is payments to attorneys, which are generally reportable even when the law firm is incorporated. Payments for medical and health care services to corporations are also reportable, though those go on a 1099-MISC rather than a 1099-NEC.
Payments for merchandise, inventory, freight, storage and similar goods are not reportable on a 1099-NEC, which reports compensation for services. Rent, royalties and prize payments are reportable, but on a 1099-MISC. Employee wages go on a W-2. And payments made through a payment card or a third-party settlement organization are generally reported by that processor on a 1099-K, not by you.
That last one causes real duplication. If you paid a contractor through a platform that issues a 1099-K, issuing your own 1099-NEC for the same payments can result in the contractor being reported on twice.
1099-NEC vs 1099-MISC vs 1099-K
| 1099-NEC | 1099-MISC | 1099-K | |
|---|---|---|---|
| Reports | Nonemployee compensation for services | Rent, royalties, prizes, other income, medical payments | Payments settled through cards or third-party networks |
| Who files | The business making the payment | The business making the payment | The payment processor or platform |
| Typical example | Paying a freelance designer | Paying rent to a landlord, paying a prize | A client paying you through a marketplace |
| Due to recipient | January 31 | Generally January 31 or February 15 depending on the box | January 31 |
| Common mistake | Using it for goods or rent | Using it for contractor services | Assuming it replaces your own filing duty |
The same payment belongs on exactly one of these. When in doubt, the question to ask is what the payment was for and who settled it.
Filing a 1099-NEC: The Mechanics, in Order
Collect a Form W-9 before you pay anyone. This is the entire game. The W-9 gives you the payee's legal name, taxpayer identification number and entity type, which is what tells you whether a 1099 is even required. Collecting W-9s at onboarding takes two minutes. Collecting them in January from a contractor you have not spoken to since June takes weeks and sometimes fails.
Backup withhold when you have to. If a payee does not furnish a TIN, or the IRS notifies you that the TIN is incorrect, you are generally required to withhold at the backup withholding rate under section 3406 and remit it. The rate is currently 24 percent. Owners who skip this can end up liable for the amount that should have been withheld.
File by January 31. The 1099-NEC is due to both the recipient and the IRS by January 31 for the prior calendar year. That is earlier and tighter than several other information returns, and unlike some forms there is no separate later deadline for the IRS copy. When January 31 falls on a weekend or holiday, the deadline generally moves to the next business day.
File electronically if you cross the return count. Filers who submit 10 or more information returns in aggregate across form types during the year are generally required to file electronically. That aggregate rule catches more small businesses than people expect, because it counts W-2s and other information returns together rather than counting 1099-NECs alone.
Correct errors promptly. Filing a corrected return is a defined process, and doing it promptly generally reduces penalty exposure compared with leaving a known error in place.
1099-NEC Penalties, and the Cheaper Alternative
Penalties for failing to file a correct information return, and separately for failing to furnish a correct statement to the recipient, are assessed per return under sections 6721 and 6722. They are tiered by how late the filing is and are indexed annually, with substantially higher amounts for intentional disregard and no cap in that case.
Per return is the part to notice. Twenty missed forms is twenty penalties, potentially doubled because the failure to file and the failure to furnish are separate.
The cheaper alternative is unglamorous: a rule that no vendor gets paid until a W-9 is on file, and a quarterly review of payments to individuals and unincorporated businesses so January is a filing exercise rather than an investigation.
If You Are the Contractor Receiving the Form
Three things are worth knowing.
Your income is reportable whether or not the form arrives. A missing 1099-NEC does not make the income tax-free, and relying on that is how underreporting notices happen. Keep your own records and report from those.
If the amount is wrong, contact the payer first and ask for a corrected form. Do not simply report a different number without documentation, because the IRS matching system compares what you report against what was filed, and an unexplained mismatch generates a notice.
Nonemployee compensation generally carries self-employment tax in addition to income tax, and there are no withholdings, which is why quarterly estimated payments exist. Being on a 1099 rather than a W-2 is not automatically better or worse; it moves the tax administration onto you.
Getting It Right the First Time
Information return compliance is boring, cheap to do correctly and expensive to fix. If you pay contractors regularly, or if you are unsure whether the people you pay are contractors at all, that is a conversation worth having before January rather than during it.
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Frequently Asked Questions
What is the 1099-NEC threshold for 2026? For payments made on or after January 1, 2026, the reporting threshold is $2,000, up from $600, and it is indexed for inflation for years after 2026. Payments made during 2025 remain subject to the $600 threshold. Because many software defaults and older articles still assume $600, confirm the current-year figure before filing.
Do I need to send a 1099-NEC to an LLC? It depends on how the LLC is taxed. A single-member LLC or a partnership LLC is generally treated as unincorporated, so payments for services are generally reportable. An LLC that has elected to be taxed as a corporation is generally excluded, with exceptions including attorney payments. The W-9 tells you which situation you are in, which is why collecting it first matters.
What is the deadline to file a 1099-NEC? January 31 for both the copy furnished to the recipient and the copy filed with the IRS, covering the prior calendar year. If January 31 falls on a weekend or holiday, the deadline generally moves to the next business day. Filers submitting 10 or more information returns in aggregate are generally required to file electronically.
What happens if I do not file a required 1099-NEC? Penalties apply per return under section 6721 for failing to file a correct return with the IRS and under section 6722 for failing to furnish a correct statement to the recipient, so a single missed form can generate two penalties. Amounts are tiered by lateness, indexed annually, and significantly higher for intentional disregard. Filing late voluntarily generally costs less than waiting to be assessed.
About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.