Do Law Firms Get a 1099? NEC vs MISC and Settlement Rules

Yes. If your business paid a law firm $600 or more during the calendar year, you generally have to send it a 1099, and this is true even when the firm is set up as a corporation. That last point is what trips people up: unlike most vendors, attorneys don’t get the corporate exemption. Whether you file Form 1099-NEC or Form 1099-MISC depends on what the money was for.

What Triggers the Filing

The obligation starts when total payments to one law firm hit $600 in a calendar year. That’s the sum of everything you paid the firm during the year: retainers, hourly billing, flat fees, settlement checks routed through the firm, anything else. A single $600 invoice triggers it; so does twelve $50 invoices.

Only payments made in the course of your trade or business count. If you hired a lawyer to handle a personal divorce or draft your will, you have no 1099 filing obligation for those fees.¹ The rule applies to businesses reporting business expenses, not to individuals paying for personal legal work.

Why the Corporate Exemption Doesn’t Apply to Attorneys

For most vendors, you only file a 1099 if the payee is an individual, a partnership, or an LLC taxed as a partnership. Payments to C-corporations and S-corporations are exempt from 1099 reporting.

Law firms are the major carve-out. Payments for legal services and gross proceeds paid to an attorney are reportable even when the firm is incorporated.¹ The practical rule is simple: don’t bother checking the firm’s entity type to decide whether to file. If you paid a law firm $600 or more for business purposes, you file.

Entity type still matters for filling the form out correctly. Firms organized as partnerships or LLPs have always been reportable under the standard rules. LLC law firms can elect to be taxed as a sole proprietorship, partnership, C-corp, or S-corp, and the classification shows on the firm’s W-9.² You still file the 1099 regardless, but you need the right classification to complete it properly.

1099-NEC or 1099-MISC

Two different forms cover payments to attorneys, and the difference is about what you were paying for.

1099-NEC for Legal Services

Use Form 1099-NEC, Box 1, when you pay the firm for its own services: hourly work, retainers, flat fees, or any compensation for the firm’s labor. If your company paid $8,000 over the year for contract drafting, that $8,000 goes in Box 1 of Form 1099-NEC.¹

1099-MISC for Gross Proceeds

Use Form 1099-MISC, Box 10, when you pay gross proceeds to an attorney in connection with legal services that aren’t for the attorney’s own services. The classic case is a settlement. If you pay $50,000 to resolve a lawsuit and send the check to the claimant’s law firm, the full $50,000 goes in Box 10 of Form 1099-MISC. The firm may keep part as its fee and pass the rest to the client, but you report the entire amount.¹

Both can apply to the same engagement. If you owe the same firm $2,000 for representation and also send $50,000 through it in settlement proceeds, you file both: $2,000 on 1099-NEC and $50,000 on 1099-MISC.

Settlement Payments in More Detail

Settlements are where the reporting gets complicated, because the same money can trigger a form to the attorney and a separate form to the claimant.

When a settlement check is made out jointly to the attorney and the claimant, you still report the full amount in Box 10 of a 1099-MISC to the attorney. The requirement to report to the attorney applies whether or not the attorney is the exclusive payee. You may also need to send a separate 1099-MISC to the claimant reporting the taxable damages portion in Box 3.¹

Whether the claimant gets a 1099 depends on what the damages are for. Damages paid on account of personal physical injuries or physical sickness, other than punitive damages, are generally excluded from the claimant’s gross income and don’t need to be reported in Box 3.³ Even so, the gross proceeds sent to the attorney still get reported in Box 10.

Punitive damages are always taxable and always reportable in Box 3, even when they arise from a physical injury claim. Damages for non-physical injuries like employment discrimination or defamation are also generally taxable and reportable in Box 3.¹

Emotional distress damages depend on origin. If the distress stems from a physical injury, treat the damages the same as the physical injury damages and don’t report them to the claimant. If there’s no underlying physical injury, the damages are taxable and reportable in Box 3, except to the extent the payment reimburses the claimant for related medical expenses.¹ When the settlement agreement doesn’t say how to characterize a payment, the IRS looks at the payer’s intent.³

Get the W-9 First

Before you can file anything, you need the law firm’s identifying information. Ask every law firm you engage for a completed Form W-9 before the first payment goes out. The W-9 gives you the firm’s legal name, address, entity type, tax classification, and Taxpayer Identification Number.⁴

The TIN matters. The IRS runs automated matching between the 1099 you file and the firm’s own return. A mismatch generates a notice requiring you to begin backup withholding at 24% on future payments to that firm until it’s fixed.⁵ Collecting the W-9 upfront avoids the problem.

Deadlines and E-Filing

Deadlines differ by form.

Form 1099-NEC is due to the law firm and to the IRS by January 31 of the year after payment, whether paper or electronic.¹
Form 1099-MISC is due to the law firm by January 31. It’s due to the IRS by February 28 on paper, or March 31 electronically.¹

If you file 10 or more information returns of any type in the year, including W-2s, you must file electronically.⁶ Electronic filing runs through the IRS IRIS portal or the FIRE system.⁷ Under 10 returns, paper is still allowed. A business that can’t meet the electronic requirement can request a waiver on Form 8508, though waivers aren’t automatic.

Penalties for Missing or Wrong Filings

The IRS imposes tiered penalties under Section 6721 for information returns that are late, missing, or incorrect. For returns due in 2026, the amounts depend on how quickly you fix the problem:⁸

Corrected within 30 days of the due date: $60 per return, up to $239,000 per year for small businesses (gross receipts of $5 million or less) or $683,000 for larger businesses.
Corrected after 30 days but by August 1: $130 per return, up to $683,000 for small businesses or $2,049,000 for larger businesses.
Corrected after August 1 or not corrected: $340 per return, up to $1,366,000 for small businesses or $4,098,500 for larger businesses.
Intentional disregard: $680 per return with no annual cap, or if greater, 10% of the amount that should have been reported.⁹

Penalties apply per form. Missing 1099s for several firms adds up quickly, especially after August 1.

If the Firm Won’t Send a W-9

Sometimes a firm drags its feet on the W-9. You still have a filing obligation. Send the 1099 with whatever information you do have; the IRS expects a filing even without a TIN rather than a skipped return.

Filing without a TIN will likely draw a penalty notice, but reasonable-cause relief may be available. The IRS looks at whether you acted responsibly both before and after the failure. Documented, dated, written requests for the W-9 strengthen the case.¹⁰

You’re also required to begin backup withholding at 24% on future payments to a firm that hasn’t provided its TIN after your request.⁵ That tends to get the paperwork moving.

Foreign Law Firms Are Different

If you paid a non-U.S. law firm for services connected to the United States, you generally don’t file a 1099. You report those payments on Form 1042-S, which covers amounts paid to foreign persons from U.S. sources, and you may also need to withhold federal tax under Chapter 3 of the Internal Revenue Code unless a tax treaty reduces or eliminates the withholding.¹¹ Fees for legal work performed entirely outside the U.S. are generally foreign-source income and aren’t reportable on Form 1042-S.

1
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
2
Internal Revenue Service. Form W-9 Request for Taxpayer Identification Number and Certification
3
Internal Revenue Service. Tax Implications of Settlements and Judgments
4
Internal Revenue Service. Instructions for the Requester of Form W-9
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Internal Revenue Service. Backup Withholding
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Internal Revenue Service. E-File Information Returns
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Internal Revenue Service. Filing Information Returns Electronically (FIRE)
8
Internal Revenue Service. 20.1.7 Information Return Penalties
9
Office of the Law Revision Counsel. 26 USC 6721 – Failure to File Correct Information Returns
10
Internal Revenue Service. Penalty Relief for Reasonable Cause
11
Internal Revenue Service. Instructions for Form 1042-S