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Form 1099-NEC reports non-employee compensation: payments made to independent contractors and other non-employees for services performed in the course of your trade or business. The IRS requires businesses to issue one whenever certain conditions are met, but there are meaningful exemptions that reduce the number of forms many businesses need to file. Knowing who actually needs a 1099-NEC is the starting point for getting your annual filing right.
The Four Conditions That Trigger a 1099-NEC
The IRS requires a 1099-NEC when all four of the following are true:
- The payment was made to someone who is not your employee
- The payment was for services performed in the course of your trade or business
- The payment was made to an individual, partnership, estate, or in some cases a corporation
- The total payments to that person reached the filing threshold during the calendar year
All four must apply. A payment that fails any one of these conditions does not require a 1099-NEC.
The Filing Threshold: 2025 and 2026
The threshold determines whether a specific payee’s payments cross the reporting line.
For the 2025 tax year (forms due to recipients by February 2, 2026 — January 31 falls on a Saturday — and to the IRS by February 28 on paper or March 31 electronically): the threshold is $600. Any contractor paid $600 or more in services during 2025 requires a 1099-NEC.
For the 2026 tax year (forms due January 31, 2027): the threshold increases to $2,000 under the One Big Beautiful Bill Act, signed July 4, 2025. This threshold will be adjusted for inflation annually from 2027.
The threshold applies per payee, per year. Payments below the threshold don’t require a 1099-NEC, but the income is still taxable to the recipient — the threshold affects your filing obligation, not their tax liability.
Who Typically Receives a 1099-NEC
Common recipients include:
- Independent contractors and freelancers
- Consultants and advisors
- Attorneys and law firms (including corporations — see exemptions below)
- Sole proprietors and single-member LLCs
- Partnerships
The payment must be for services, not goods. Payments for inventory, supplies, equipment, or software do not belong on a 1099-NEC. If a contractor provides both services and materials as part of a single project, only the services portion is reportable — though in practice, if the amounts can’t be separated, the full payment may need to be reported.
Who Does Not Receive a 1099-NEC
Several categories of payments and payees are exempt.
Corporations. Payments to C-corporations and S-corporations are generally exempt from 1099-NEC reporting. There are two exceptions: payments to attorneys or law firms regardless of their corporate structure, and payments to certain healthcare providers and medical service providers, must be reported even when made to corporations.
Personal payments. The IRS only requires 1099-NEC for payments made in the course of your trade or business. A homeowner who pays a contractor to remodel their kitchen has no 1099-NEC obligation. A business that pays the same contractor for the same work does.
Payments for goods. As noted above, 1099-NEC covers services only. Purchasing products from a vendor, even a self-employed one, does not require a 1099-NEC.
Payments made through credit or debit cards or third-party payment networks. If you pay a contractor via credit card, debit card, PayPal, Venmo, or a similar payment platform, the payment processor is responsible for any required reporting on Form 1099-K. You are not required to issue a 1099-NEC for those payments.
Payments below the threshold. Payments totaling less than $600 (2025) or $2,000 (2026) to a single payee in a calendar year do not require a 1099-NEC.
The Importance of Collecting W-9s Before Payment
The information on a 1099-NEC — the recipient’s legal name, address, and taxpayer identification number (TIN) — comes from Form W-9, which you collect from the contractor before making payments. Without a valid W-9, you may not have the information you need to file accurately, and if a TIN is missing or incorrect, you may be required to withhold 24% of payments as backup withholding and remit it to the IRS.
The practical standard is to collect a W-9 from every service provider before their first payment, regardless of whether you expect payments to reach the threshold. You won’t always know upfront what total payments will be by year end.
Employee vs. Contractor: A Note on Classification
Whether a worker is an employee or an independent contractor determines whether you issue a W-2 or a 1099-NEC — and misclassifying an employee as a contractor creates significant tax exposure. For a full treatment of how the IRS distinguishes between the two and what the consequences of misclassification are, see our post on freelance vs. full-time worker classification.
How TAB1099 Handles 1099-NEC Processing
For businesses issuing 1099-NEC forms at any volume, TAB1099 manages the complete filing process — data intake and validation, TIN matching against IRS records, direct IRS e-filing, electronic recipient delivery, print and mail, state filing, and unlimited corrections at no additional cost. Every account is assigned a dedicated analyst with direct client access throughout the filing season.
Ready to simplify your 1099-NEC filing? Contact Tab Service at 312-527-4306, email info@tabservice.com, or request a quote online.
Frequently Asked Questions
Does a 1099-NEC go to every independent contractor I pay?
Only if the total payments for services reach the threshold — $600 for 2025, $2,000 for 2026 — and the contractor is not a corporation (with exceptions for attorneys and certain medical providers). Payments made via credit card or third-party payment platforms like PayPal are also exempt, as those are reported by the payment processor.
Do I need to issue a 1099-NEC to an LLC?
It depends on how the LLC is taxed. A single-member LLC taxed as a sole proprietor receives a 1099-NEC. A multi-member LLC taxed as a partnership receives a 1099-NEC. An LLC taxed as a C- or S-corporation is generally exempt, with the same attorney and medical provider exceptions that apply to corporations.
What if I paid a contractor less than $600 but they asked for a 1099-NEC?
You are not required to issue one below the threshold, but you may do so voluntarily. The income is taxable to the recipient regardless of whether a form is issued.
What is the deadline for issuing 1099-NEC forms?
For tax year 2025, recipient copies must be furnished by February 2, 2026 (January 31 falls on a Saturday). IRS paper filing is due February 28, 2026; electronic filing is due March 31, 2026. For tax year 2026 and beyond, the standard deadline is January 31. Businesses filing 10 or more information returns are required to e-file.
What happens if I don’t issue a required 1099-NEC?
Failure to file correct information returns carries penalties ranging from $60 to $340 per form depending on how late the filing or correction is made. Intentional disregard carries a minimum of $680 per form with no maximum cap.
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