Who gets a 1099-NEC, the $600 threshold, deadlines, penalties, how it differs from 1099-MISC and 1099-K, and a step-by-step filing checklist. Written for the 2026 tax year.
Form 1099-NEC ("Nonemployee Compensation") is the information return businesses use to report payments made to independent contractors. If you run a business and you paid someone who isn't your employee to perform services, the 1099-NEC is how you tell both that person and the IRS what you paid them.
The form is the contractor's mirror image of a W-2. An employee gets a W-2 with taxes already withheld; a contractor gets a 1099-NEC reporting gross pay with nothing withheld, and is responsible for their own income and self-employment tax. The amount you report in box 1 flows straight onto the contractor's Schedule C.
You must issue a 1099-NEC when all four of these are true:
Common situations that require a 1099-NEC:
Attorney fees are special. Payments of $600 or more to an attorney for legal services go on the 1099-NEC even if the law firm is incorporated. (Separately, gross proceeds paid to an attorney — like a settlement routed through their trust account — go in box 10 of the 1099-MISC, not the NEC.)
You do not issue a 1099-NEC for:
| Situation | Why not |
|---|---|
| Payments to C-corps and S-corps | Corporations are generally exempt (the W-9 tells you the entity type). Exceptions: attorneys and medical/health-care payments. |
| Payments by card or third-party network | Credit card, debit card, PayPal, Venmo business, Stripe, etc. are reported by the processor on 1099-K. Issuing a NEC too would double-report. |
| Under $600 for the year | No filing required (though the contractor still owes tax on it). |
| Payments for merchandise/products | Buying inventory or goods isn't nonemployee compensation. Services are what trigger the form. |
| Personal payments | Paying someone to mow your home lawn or fix your personal car isn't a trade-or-business payment. |
| Employees | They get a W-2, never a 1099-NEC, for the same work. |
| Rent paid to a landlord | That's 1099-MISC box 1 territory, not nonemployee compensation. |
Three forms get confused constantly. Here's the clean division:
| Form | Reports | Who files it |
|---|---|---|
| 1099-NEC | Nonemployee compensation — payment for services to contractors (cash/check/ACH). | The business that hired the contractor. |
| 1099-MISC | Rent, prizes and awards, royalties ($10+), medical payments, attorney gross proceeds, other income. | The business making those payments. |
| 1099-K | Payments settled through cards and third-party networks (PayPal, Stripe, Venmo business). | The payment processor / platform — not you. |
The practical rule: services paid directly → you file a 1099-NEC. Rent, royalties, prizes → you file a 1099-MISC. Anything run through a card or app → the processor files a 1099-K and you file nothing.
Form W-9 is how you get the information you need to issue an accurate 1099-NEC: the contractor's legal name, business name, federal tax classification (entity type), and taxpayer identification number (SSN or EIN).
The single best habit you can build is to collect a W-9 before you cut the first check — make it part of onboarding every vendor. Chasing W-9s in January, after a contractor has finished the job and stopped answering email, is how businesses end up filing late or wrong.
The 1099-NEC has one of the tightest deadlines of any information return:
If January 31 falls on a weekend or legal holiday, the deadline rolls to the next business day.
The IRS lowered the e-file threshold dramatically: if you file 10 or more information returns of any type combined in a year, you must file electronically through the IRS IRIS or FIRE systems. Most small businesses below that threshold can still mail paper Copy A with Form 1096 as the transmittal summary — but electronic filing is faster, gets instant confirmation, and avoids the special scannable-form requirement for paper Copy A.
Penalties for late or missing 1099-NECs are assessed per form, and they scale with how late you are. For 2026 the tiers run roughly:
| How late | Penalty per form |
|---|---|
| Up to 30 days late | ~$60 |
| 31 days late through August 1 | ~$130 |
| After August 1 or never filed | ~$330 |
| Intentional disregard | ~$660+ (no maximum) |
Two things make this worse than it looks. First, penalties apply separately to the recipient copy and the IRS copy, so one missed form can be penalized twice. Second, they're per form — a contractor business that skips ten 1099-NECs is looking at twenty penalty assessments. Exact amounts are inflation-adjusted each year.
If a contractor doesn't give you a valid TIN, or the IRS notifies you that the TIN you reported is wrong, you may be required to withhold 24% of future payments and remit it to the IRS as backup withholding. Any backup withholding you took gets reported in box 4 of the 1099-NEC. The cleanest way to avoid this entirely is — again — collecting a complete, accurate W-9 before the first payment.
The hard part of 1099-NEC filing isn't the form — it's reconstructing, in January, who you paid, how much, and by what method, across a year of transactions. PayStream Pro keeps that ready all year:
See the features, view pricing, or start a 14-day free trial.
Any unincorporated person or business (sole proprietor, single-member LLC, partnership) you paid $600 or more for services during the year in the course of your trade or business. This includes subcontractors, freelancers, consultants, and most independent service providers. Personal, non-business payments don't require a 1099.
Both the recipient copy and the IRS copy of Form 1099-NEC are due by January 31. If January 31 falls on a weekend or holiday, the deadline moves to the next business day. Unlike some other 1099 forms, there's no extended paper-filing deadline — the IRS copy is due the same day as the recipient copy.
1099-NEC reports nonemployee compensation — payments for services to contractors. 1099-MISC reports other payments: rent, prizes, awards, royalties, medical payments, and attorney gross proceeds. Before 2020, contractor pay went on 1099-MISC box 7; the IRS split it out into the dedicated 1099-NEC form starting with tax year 2020.
Usually no. Payments to C-corporations and S-corporations are generally exempt. The major exceptions are payments to attorneys (always reportable regardless of entity type) and medical/health-care payments. When in doubt, collect a W-9 first — it tells you the entity type.
Don't issue a 1099-NEC for payments made by credit card, debit card, or third-party networks like PayPal or Venmo business accounts. Those are reported by the payment processor on Form 1099-K. Issuing both would double-report the income. Only cash, check, or ACH/bank-transfer payments go on a 1099-NEC.
Penalties scale with how late you file, from about $60 per form (within 30 days) up to $330 per form (after August 1 or never filed), with higher penalties for intentional disregard. Penalties apply separately to the recipient copy and the IRS copy, so a single missed form can cost double. Amounts are inflation-adjusted annually.
You should collect a completed Form W-9 from every contractor before you pay them, ideally before the first payment. The W-9 gives you their legal name, business name, entity type, and taxpayer identification number — everything needed to issue an accurate 1099-NEC. Collecting it upfront avoids the year-end scramble and protects you if a contractor disappears.
It depends on whether the rental rises to a trade or business. Landlords operating rentals as a trade or business should issue 1099-NECs to unincorporated contractors (plumbers, handymen, property managers) paid $600 or more. Passive investors with a single rental are generally not required to, but issuing them is good practice and never penalized.