If you paid independent contractors, freelancers, or other nonemployees for services, you’re likely required to file Form 1099-NEC. This essential tax document reports payments to the IRS and helps ensure everyone pays their fair share.
The 1099-NEC landscape changed significantly in 2025 with the passage of the One Big Beautiful Bill Act, which raises the reporting threshold to $2,000 for payments made in 2026. This guide covers everything you need to know—whether you’re filing for 2025 payments now or preparing for the upcoming changes.
Quick Summary
| Aspect | Details |
|---|---|
| Purpose | Report nonemployee compensation to the IRS |
| Who files | Businesses that paid $600+ to non-employees (2025) |
| New threshold | $2,000 for payments made in 2026 and later |
| Deadline | January 31 (or next business day) |
| 2025 filing deadline | February 2, 2026 (Jan 31 is a Saturday) |
| E-file required | If you have 10+ information returns total |
| Extension available | No—1099-NEC has no filing extension |
What Is Form 1099-NEC?
Form 1099-NEC (Nonemployee Compensation) is an IRS information return used to report payments made to independent contractors, freelancers, and other nonemployees for services performed in your trade or business.
History: Why 1099-NEC Exists
Before 2020, nonemployee compensation was reported on Form 1099-MISC in Box 7. The IRS reintroduced Form 1099-NEC starting with tax year 2020 to:
- Separate contractor payments from other miscellaneous income
- Create a single, earlier deadline for all nonemployee compensation
- Reduce confusion between different payment types
- Improve IRS matching and compliance detection
The form’s name comes from its original purpose: NonEmployee Compensation—making it crystal clear what belongs on this form versus 1099-MISC.
Major 2026 Changes You Need to Know
The One Big Beautiful Bill Act
Signed into law on July 4, 2025, the One Big Beautiful Bill Act brings significant changes to 1099 reporting:
| Change | Old Rule | New Rule (2026+) |
|---|---|---|
| 1099-NEC threshold | $600 | $2,000 |
| 1099-MISC threshold | $600 | $2,000 |
| Backup withholding threshold | $600 | $2,000 |
| Inflation adjustment | None | Annual adjustment starting 2027 |
What this means:
- For 2025 payments (filed in early 2026): The $600 threshold still applies
- For 2026 payments (filed in early 2027): The new $2,000 threshold takes effect
- Starting 2027: The threshold will adjust annually for inflation, rounded to the nearest $100
FIRE System Retirement
The IRS is retiring the Filing Information Returns Electronically (FIRE) system. For tax year 2026 (filed in 2027), the Information Returns Intake System (IRIS) will become the primary—and eventually only—electronic filing method.
If you currently use FIRE, plan to transition to IRIS before the 2027 filing season.
Who Must File Form 1099-NEC?
You Must File 1099-NEC If:
Payment Amount Thresholds:
- Tax year 2025 (filing in 2026): You paid $600 or more
- Tax year 2026 (filing in 2027): You paid $2,000 or more
AND the payment was:
- Made to a nonemployee (independent contractor, freelancer, sole proprietor)
- Made in the course of your trade or business
- Made for services performed (not products)
- Made to a U.S. person (citizen, resident alien, or U.S. entity)
Common Recipients Who Need 1099-NEC
| Recipient Type | Examples |
|---|---|
| Independent contractors | Web developers, graphic designers, consultants |
| Freelancers | Writers, photographers, videographers |
| Sole proprietors | Landscapers, cleaning services, repair technicians |
| Attorneys | Legal fees for services (always reportable) |
| Healthcare providers | Medical and health care payments |
| Directors | Non-employee director fees |
You Don’t Need to File 1099-NEC If:
- Payment was under $600 (2025) or under $2,000 (2026)
- Recipient is a C corporation or S corporation (with exceptions)
- Payment was made to an employee (use Form W-2)
- Payment was for merchandise or goods (not services)
- Payment was made through credit card or payment processor (reported on 1099-K)
- Payment was for personal purposes (not business-related)
Important Exceptions
Always file 1099-NEC regardless of corporate status for:
- Attorneys and law firms (legal services)
- Medical and healthcare providers
- Single-member LLCs (treated as sole proprietors)
Form 1099-NEC: Box-by-Box Instructions
Payer Information Section (Top Left)
| Field | What to Enter |
|---|---|
| PAYER’S name | Your legal business name exactly as on tax return |
| Street address | Your complete business address |
| City, state, ZIP | Full city, two-letter state code, and ZIP |
| PAYER’S TIN | Your EIN (preferred) or SSN |
| Telephone number | Business phone for IRS contact |
Recipient Information Section (Left Side)
| Field | What to Enter |
|---|---|
| RECIPIENT’S TIN | Contractor’s SSN, EIN, or ITIN (from W-9) |
| RECIPIENT’S name | Legal name exactly as on their W-9 |
| Street address | Current mailing address |
| City, state, ZIP | Full address details |
| Account number | Optional—useful for tracking multiple contractors |
Box 1: Nonemployee Compensation
This is the most important box on the form.
Enter the total amount paid to the recipient during the calendar year for services. Include:
- Direct payments for services rendered
- Fees, commissions, and bonuses
- Professional service fees (consulting, accounting, IT services)
- Contract labor payments
Do NOT include:
- Reimbursed expenses documented with receipts
- Payments made via credit card or payment processor (reported on 1099-K)
- Payments for goods or products (only services)
Threshold Reminder:
- 2025 payments: Report if $600 or more
- 2026 payments: Report if $2,000 or more
Box 2: Checkbox for Direct Sales
Mark an “X” in this checkbox if you made direct sales of $5,000 or more in consumer products to the recipient for resale purposes.
This applies to:
- Buy-sell arrangements
- Deposit-commission arrangements
- Similar sales arrangements
Note: This is only a checkbox—do not enter a dollar amount. You may report this on either Form 1099-NEC (Box 2) or Form 1099-MISC (Box 7).
Box 3: Excess Golden Parachute Payments (New)
This is a 2025 change. Excess golden parachute payments are now reported on Form 1099-NEC instead of Form 1099-MISC.
Enter the portion of payments that are considered “excess” under IRC Section 280G. These are typically large severance payments to executives that exceed 3x their base compensation.
Most small businesses will leave this box blank—it primarily applies to corporate executive compensation.
Box 4: Federal Income Tax Withheld
Enter any backup withholding you withheld from payments. The current backup withholding rate is 24%.
When backup withholding applies:
- Recipient failed to provide a valid TIN
- IRS notified you that the TIN is incorrect
- Recipient is subject to backup withholding for underreporting
Most 1099-NEC forms show $0 in this box since contractors typically aren’t subject to withholding.
Boxes 5–7: State Tax Information
| Box | Purpose |
|---|---|
| Box 5 | State tax withheld (if applicable) |
| Box 6 | State/Payer’s state number |
| Box 7 | State income |
Complete these boxes if your state requires reporting or if you withheld state taxes. Many states participate in the Combined Federal/State Filing Program, which forwards 1099 data automatically.
Filing Deadlines for 2026
For Tax Year 2025 Payments (Filing in 2026)
| Deadline | Action Required |
|---|---|
| January 31, 2026 | Standard deadline (falls on Saturday) |
| February 2, 2026 | Actual deadline (next business day) |
This deadline applies to:
- Sending Copy B to recipients
- Filing Copy A with the IRS (paper or electronic)
There is no extension available for Form 1099-NEC. Unlike most other information returns, you cannot request additional time to file.
For Tax Year 2026 Payments (Filing in 2027)
| Deadline | Action Required |
|---|---|
| January 31, 2027 | File with IRS and send to recipients |
Plan ahead—the new $2,000 threshold takes effect, but you still must file by January 31.
How to File Form 1099-NEC
Option 1: Electronic Filing (Recommended)
Required if: You have 10 or more information returns in aggregate (including W-2s, 1099-NEC, 1099-MISC, 1099-INT, etc.)
Methods:
- IRS IRIS (Information Returns Intake System) — Free IRS portal at irs.gov/iris
- IRS FIRE System — Legacy system being phased out
- Third-party software — Tax software and payroll services
Benefits of e-filing:
- Faster processing and confirmation
- Reduced risk of errors
- Easier recordkeeping
- No Form 1096 required
Option 2: Paper Filing
Available if: You file fewer than 10 information returns total
Requirements:
- Order official IRS forms (not printable from IRS.gov—they’re not scannable)
- Include Form 1096 as a cover sheet
- Mail flat (do not fold or staple)
Order forms at: irs.gov/orderforms or call 1-800-TAX-FORM
Copies of Form 1099-NEC
| Copy | Recipient |
|---|---|
| Copy A | IRS (red scannable form for paper filing) |
| Copy 1 | State tax department (if required) |
| Copy B | Recipient (contractor) |
| Copy 2 | Recipient’s state return (if required) |
| Copy C | Your records (keep for 4+ years) |
Filing Penalties for 2026
Missing deadlines or filing incorrectly can be expensive. The IRS penalty structure escalates based on how late you file:
Late Filing Penalties
| How Late | Penalty Per Form (2026) |
|---|---|
| Within 30 days | $60 |
| 31 days through August 1 | $130 |
| After August 1 | $340 |
| Intentional disregard | $680 (no maximum) |
Penalty Examples
Scenario 1: You file 5 forms 15 days late Penalty: 5 × $60 = $300
Scenario 2: You file 10 forms on September 15 Penalty: 10 × $340 = $3,400
Scenario 3: You intentionally don’t file 8 required forms Penalty: 8 × $680 = $5,440 (plus potential audit consequences)
Small Business Exception
Penalties may be reduced if:
- Your gross receipts are $5 million or less
- The failure wasn’t due to intentional disregard
- You correct the error promptly
How to Avoid Penalties
- Collect W-9 forms upfront — Before making the first payment
- Track payments throughout the year — Don’t scramble in January
- Verify TINs — Use the IRS TIN Matching service
- File early — Don’t wait until the deadline
- E-file if possible — Fewer errors, faster confirmation
1099-NEC vs. 1099-MISC: Which to Use?
A common point of confusion. Here’s a simple decision guide:
Use Form 1099-NEC For:
| Payment Type | Examples |
|---|---|
| Services by non-employees | Freelance work, consulting, contract labor |
| Professional fees | Attorneys, accountants, IT consultants |
| Commissions to non-employees | Sales agents, referral fees |
| Director fees | Non-employee board members |
Use Form 1099-MISC For:
| Payment Type | Box | Threshold |
|---|---|---|
| Rent payments | Box 1 | $600+ |
| Royalties | Box 2 | $10+ |
| Prizes and awards | Box 3 | $600+ |
| Medical/healthcare payments | Box 6 | $600+ |
| Attorney fees (gross proceeds, not services) | Box 10 | $600+ |
Quick Decision Tree
- Was the payment for services? → Use 1099-NEC
- Was the payment for rent, royalties, or prizes? → Use 1099-MISC
- Was the payment to an employee? → Use W-2 (not 1099)
- Was the payment via credit card/PayPal? → The processor files 1099-K (you don’t file)
What Recipients Should Know
If you receive a Form 1099-NEC, here’s what you need to do:
Step 1: Verify Accuracy
Check that:
- Your name and TIN are correct
- The amount matches your records
- Payer information is accurate
If there’s an error: Contact the payer immediately and request a corrected 1099-NEC.
Step 2: Report on Your Tax Return
| Where to Report | Form |
|---|---|
| Self-employment income | Schedule C (Profit or Loss from Business) |
| Net profit calculation | Schedule C → Form 1040 |
| Self-employment tax | Schedule SE |
Step 3: Calculate Self-Employment Tax
If your net earnings from self-employment are $400 or more, you owe self-employment tax:
| Tax Type | Rate | Your Share |
|---|---|---|
| Social Security | 12.4% | Full 12.4% (normally split with employer) |
| Medicare | 2.9% | Full 2.9% |
| Total | 15.3% | You pay the full amount |
Silver lining: You can deduct half of self-employment tax on Form 1040 (Line 15).
Step 4: Pay Quarterly Estimated Taxes
Unlike W-2 employees, 1099 income has no withholding. You’re responsible for paying estimated taxes quarterly:
| Due Date | Period Covered |
|---|---|
| April 15 | Jan 1 – Mar 31 |
| June 15 | Apr 1 – May 31 |
| September 15 | Jun 1 – Aug 31 |
| January 15 (next year) | Sep 1 – Dec 31 |
Pro tip: Set aside 25-30% of each payment for taxes. This covers self-employment tax (15.3%) plus federal income tax (10-22%+ depending on bracket).
Step 5: Deduct Business Expenses
Self-employed individuals can deduct ordinary and necessary business expenses on Schedule C:
- Home office (actual expenses or simplified method)
- Business mileage ($0.70/mile for 2026)
- Equipment, software, and supplies
- Professional development and education
- Business insurance
- Marketing and advertising
- Travel and meals (50% for meals)
Common Mistakes to Avoid
Mistake 1: Missing the Deadline
Problem: Form 1099-NEC has no extension. Miss January 31, and penalties start immediately.
Solution: Start preparing in early January. Don’t wait until the last week.
Mistake 2: Wrong or Missing TINs
Problem: Incorrect TINs trigger IRS notices and potential backup withholding.
Solution:
- Collect W-9 forms before making any payments
- Use the IRS TIN Matching service to verify before filing
- Keep W-9s on file for at least 4 years
Mistake 3: Using 1099-MISC Instead of 1099-NEC
Problem: Using the wrong form causes processing issues and potential penalties.
Solution: If the payment is for services performed by a non-employee, use 1099-NEC. Period.
Mistake 4: Including Payments Made Via Payment Processors
Problem: Credit card and third-party payments (PayPal, Venmo, Stripe) are reported on Form 1099-K by the payment processor.
Solution: Exclude these payments from your 1099-NEC calculations. Only report direct payments (check, ACH, cash).
Mistake 5: Printing Forms from IRS.gov
Problem: Forms printed from IRS.gov have red ink but aren’t scannable. The IRS will reject them.
Solution:
- E-file through IRIS or FIRE
- Order official forms from irs.gov/orderforms
- Use IRS-approved tax software
Mistake 6: Forgetting State Filing
Problem: Many states require 1099-NEC filing in addition to federal.
Solution: Check your state’s requirements. Many participate in the Combined Federal/State Filing Program—your federal e-file automatically goes to participating states.
How to Correct a 1099-NEC
Made an error on a filed form? Here’s how to fix it:
Type 1 Errors (Incorrect Amounts or Codes)
Examples: Wrong dollar amount, wrong box
Correction Process:
- Prepare a new Form 1099-NEC
- Check the “CORRECTED” box at the top
- Enter all information correctly
- File with the IRS (e-file or paper)
- Send corrected Copy B to the recipient
Type 2 Errors (Incorrect TIN, Name, or Form Type)
Examples: Wrong SSN/EIN, misspelled name, should have used different form
Correction Process:
- File a “zeroing out” return (original incorrect data with $0 amounts)
- Check “CORRECTED” on this form
- File a new, correct Form 1099-NEC with all proper information
- Send copies to recipient
De Minimis Safe Harbor
You don’t need to file a correction if:
- The dollar amount is wrong by $100 or less
- The withholding amount is wrong by $25 or less
(Unless the recipient requests a corrected form)
Frequently Asked Questions
Do I need to file 1099-NEC for payments under $600?
For 2025 payments: No, $600 is the threshold. For 2026 payments: No, but the threshold increases to $2,000.
However, the recipient must still report all income on their tax return, even without a 1099.
What if I paid someone $500 in January and $200 in December?
Add them together. If your total payments to one person exceed the threshold ($600 for 2025, $2,000 for 2026), you must file a 1099-NEC for the combined $700.
Do I need to file 1099-NEC for a corporation?
Generally no. Payments to C corporations and S corporations are exempt.
Exceptions (always report):
- Attorneys and law firms
- Medical and healthcare providers
- Single-member LLCs (taxed as sole proprietors)
What’s the difference between 1099-NEC and W-2?
| Aspect | 1099-NEC | W-2 |
|---|---|---|
| Recipient | Independent contractor | Employee |
| Tax withholding | None (usually) | Employer withholds |
| Employment taxes | Recipient pays full 15.3% | Split 50/50 |
| Control | Contractor controls how work is done | Employer controls |
| Benefits | None provided | Often included |
Misclassifying employees as contractors is a serious IRS compliance issue. When in doubt, review IRS guidelines on worker classification.
Can I file 1099-NEC for personal payments?
No. Form 1099-NEC is only for payments made in the course of your trade or business. Personal payments (e.g., paying a babysitter or home cleaner) are not reportable.
What if I didn’t receive a W-9 from the contractor?
You should have requested one before the first payment. If you never received it:
- Send a formal request (keep documentation)
- If no response, you may need to apply backup withholding (24%)
- File the 1099-NEC with whatever information you have
- Use “Applied For” in the TIN field if truly unknown
How long should I keep 1099-NEC records?
Keep copies for at least 4 years from the due date of the return or the date filed, whichever is later. This aligns with the IRS statute of limitations.
Best Practices for Businesses
Year-Round Compliance
- January: Collect W-9 from new contractors before first payment
- Throughout year: Track payments by contractor in accounting software
- November: Review contractor list and payment totals
- Early January: Generate and verify 1099-NEC forms
- By January 31: File with IRS and deliver to recipients
W-9 Collection Tips
- Request W-9 before making any payment
- Make it part of your onboarding process
- Store W-9s securely (they contain SSNs)
- Update annually if address or entity type changes
Recordkeeping Checklist
- W-9 on file for each contractor
- Payment records (invoices, checks, ACH confirmations)
- Copy C of filed 1099-NEC forms
- IRS filing confirmation (e-file) or certified mail receipt (paper)
- Any correspondence regarding corrections
Timeline: What’s Changing When
| Date | Event |
|---|---|
| July 4, 2025 | One Big Beautiful Bill Act signed into law |
| January 31, 2026 | Deadline for 2025 1099-NEC (but falls on Saturday) |
| February 2, 2026 | Actual deadline for 2025 1099-NEC |
| December 31, 2026 | Last day of first year with $2,000 threshold |
| January 31, 2027 | Deadline for 2026 1099-NEC ($2,000 threshold applies) |
| 2027+ | Annual inflation adjustment to threshold begins |
Conclusion
Form 1099-NEC is critical for businesses that work with independent contractors. Key takeaways:
For Payers:
- File 1099-NEC for nonemployee payments of $600+ (2025) or $2,000+ (2026)
- Deadline is January 31 with no extension available
- E-file if you have 10+ information returns
- Collect W-9 forms before making payments
- Plan for IRIS transition as FIRE system retires
For Recipients:
- Report 1099-NEC income on Schedule C
- Pay quarterly estimated taxes
- Set aside 25-30% for self-employment and income taxes
- Deduct legitimate business expenses
The new $2,000 threshold starting in 2026 will reduce paperwork for many small businesses, but the fundamentals remain the same: accurate reporting, timely filing, and proper recordkeeping.
Ready to Fill Out Your 1099-NEC?
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Related Resources
- Understanding 1099 Forms: Complete Guide
- How to Fill Out Form 1096
- How to Fill Out Form W-9
- All Tax Forms
Last updated: February 23, 2026 Reviewed by Jennifer Adams, Senior Tax Advisor Updated with One Big Beautiful Bill Act threshold changes and 2026 IRS penalty amounts
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