In the course of a trade or business, you must issue a Form 1099-NEC once you pay a single contractor $600 or more for services during the calendar year. That figure is the answer to how much you can pay contract labor before a 1099 is required: anything under $600 in total for the year, no federal 1099-NEC is required from you, though the contractor still owes tax on every dollar they earned.1Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
How the $600 Threshold Actually Works
The $600 rule comes from the Internal Revenue Code’s requirement that anyone paying remuneration for services in the course of a trade or business file an information return once total payments to one person reach that amount in a calendar year.2Office of the Law Revision Counsel. 26 USC 6041A – Returns Regarding Payments of Remuneration for Services and Direct Sales A few features of that rule catch people out.
It’s cumulative. Ten payments of $60 to the same contractor cross the line just as surely as one payment of $600. If your total for the year lands at $599.99, no 1099-NEC is required. One cent more and it is.
It’s calendar year. The clock resets on January 1, regardless of when your business’s fiscal year begins or ends.
It applies only in the course of a trade or business, which includes nonprofits. Hiring someone to paint your office is reportable; hiring the same person to paint your living room is not.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
1099-NEC or 1099-MISC?
The 1099-NEC is specifically for nonemployee compensation: payments for services performed by someone who is not your employee. The 1099-MISC covers other business payments such as rent, royalties of $10 or more, prizes and awards, medical and health care payments, and gross proceeds paid to an attorney.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC For contract labor, you use the 1099-NEC. For most payment types on both forms, the $600 threshold applies.
When You Can Pay More Than $600 and Still Skip the 1099
Crossing $600 doesn’t automatically mean a 1099-NEC. Three common situations remove the filing obligation.
- Payments to C corporations or S corporations, including LLCs taxed as either. The contractor’s W-9 tells you their tax classification.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
- Payments made by credit card, debit card, or a third-party platform such as PayPal or Venmo. The payment processor reports those payments to the contractor on Form 1099-K, and issuing a 1099-NEC on top would double-report the same income. The current 1099-K threshold for payment apps and online marketplaces is $20,000 across more than 200 transactions.4Internal Revenue Service. Understanding Your Form 1099-K
- Personal payments made outside any trade or business. Paying a babysitter or a neighbor to mow your lawn doesn’t trigger 1099-NEC reporting.5Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return?
One exception cuts through the corporate rule: payments of $600 or more to an attorney for legal services must be reported on Form 1099-NEC even when the law firm is incorporated.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Gross proceeds paid to an attorney that aren’t for the attorney’s own services, such as settlement funds passed through to a client, go on Form 1099-MISC box 10 instead.
Collect a W-9 Before the First Payment
Whether you’ll owe a 1099-NEC on a given contractor depends on information only they can give you, so ask for it before you write the first check. IRS Form W-9 captures the contractor’s legal name, address, taxpayer identification number, and federal tax classification.6Internal Revenue Service. Form W-9 (Rev. March 2024) Request for Taxpayer Identification Number and Certification For individuals, the TIN is usually a Social Security Number. For business entities, it’s an Employer Identification Number.
The tax classification on the W-9 is what tells you whether the corporate exemption applies. Requesting the form upfront prevents chasing contractors down in January. Keep completed W-9s on file for at least four years in case of an audit.7Internal Revenue Service. How Long Should I Keep Records? The IRS also offers a free TIN Matching service through e-Services that lets you verify a name-and-TIN combination against IRS records before you file, which reduces the risk of mismatch notices.8Internal Revenue Service. Taxpayer Identification Number (TIN) Matching Tools
If the Contractor Won’t Give You a TIN
If a contractor refuses to provide a TIN, gives you one that’s obviously wrong (not nine digits, or containing letters), or the IRS notifies you that a previously filed TIN doesn’t match its records, you must begin backup withholding at 24% of each payment.9Internal Revenue Service. Publication 15 (Circular E), Employer’s Tax Guide You hold back that 24% and remit it to the IRS on Form 945, the annual return for withheld federal income tax from nonpayroll payments.10Internal Revenue Service. About Form 945, Annual Return of Withheld Federal Income Tax
This isn’t optional. Once the trigger conditions exist, you are personally liable for the withholding whether or not you actually withheld from the payment. You must also make up to three solicitations for a correct TIN to avoid missing-TIN penalties.11Internal Revenue Service. Backup Withholding “B” Program
Filing Deadlines and How to File
Both the contractor’s copy and the IRS copy of Form 1099-NEC are due by January 31 following the year of payment.12Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) When that date falls on a weekend, the deadline shifts to the next business day. For tax year 2025 forms, the deadline is February 2, 2026, because January 31, 2026 is a Saturday.13Internal Revenue Service. 2026 Publication 1099
If your business files 10 or more information returns of any type in a year, counting W-2s, 1099-NECs, 1099-MISCs, and every other information return together, you must file electronically.14Internal Revenue Service. E-file Information Returns The IRS’s Information Returns Intake System (IRIS) is the primary electronic platform and includes a free online portal for small businesses.15Internal Revenue Service. E-file Information Returns with IRIS The older FIRE system still operates but is being retired; IRIS will be the sole electronic intake system starting with filing season 2027.16Internal Revenue Service. Filing Information Returns Electronically (FIRE) Businesses filing fewer than 10 information returns may still submit paper forms.
What It Costs to File Late or Wrong
The IRS charges two separate penalties for each botched 1099: one for failing to file a correct return with the IRS, and one for failing to furnish a correct statement to the contractor. Both follow the same tiered structure based on how quickly you fix the problem.17Internal Revenue Service. Information Return Penalties
For returns due in 2026, the per-form penalty is:
- $60 if filed correctly within 30 days of the due date
- $130 if filed correctly after 30 days but by August 1
- $340 if filed after August 1 or not at all
- $680 per form for intentional disregard, with no maximum cap
Because the payer copy and the payee copy each carry their own penalty, actual exposure on a single missed form can be double the figures above. Annual caps apply to each tier (for example, $683,000 for the 30-day tier, reduced to $239,000 for small businesses), but the intentional disregard penalty has no ceiling.18Internal Revenue Service. General Instructions for Certain Information Returns (2025)
The IRS can waive these penalties for reasonable cause, meaning you exercised ordinary business care but still could not comply, based on circumstances such as fires, natural disasters, serious illness, or reliance on erroneous professional advice.19Internal Revenue Service. 20.1.1 Introduction and Penalty Relief The First Time Abate program that forgives many other penalties automatically does not apply to information return penalties.
State Rules May Add Their Own Filing
Federal filing is only half the story. Most states with an income tax also require 1099-NEC reporting. Some participate in the IRS’s Combined Federal/State Filing (CF/SF) Program, which forwards your electronically filed data to the state at no extra cost.20Internal Revenue Service. Combined Federal/State Filing (CF/SF) Program Others require a direct filing on their own timeline. A handful require state income tax withholding on payments to nonresident contractors. If you pay contractors across state lines, check each state’s revenue agency for its rules.