When to Use Form 1099-NEC: Threshold, Deadlines & Penalties

Use Form 1099-NEC when your business paid an independent contractor, freelancer, or other non-employee at least the annual reporting threshold for services performed in the course of your trade or business. For payments made during 2025 (filed in early 2026), that threshold is $600. For payments made during 2026 (filed in early 2027), it rises to $2,000 under P.L. 119-21, with inflation adjustments in later years.¹ The form covers cash and check payments to non-corporate payees; card and app payments are handled by someone else, and several categories of payee are exempt entirely.

The Dollar Threshold That Triggers a Filing

The filing obligation comes from 26 U.S.C. § 6041A, which requires a return when you pay a non-employee for services in the course of your business and the total for the year reaches the applicable threshold.²

The threshold depends on the payment year, not the filing year:

Payments made in 2025: $600 threshold, reported on forms due in early 2026.
Payments made in 2026: $2,000 threshold, reported on forms due in early 2027.¹

If you pay a contractor less than the applicable threshold for that year, you generally have no 1099-NEC obligation for that person. The contractor still owes income tax on every dollar earned. The threshold governs your paperwork, not their tax bill.

What Counts as Nonemployee Compensation

The requirement covers services connected to your trade or business. Hire a graphic designer to build your company’s logo and the payment counts. Hire the same designer for a personal party invitation and it does not.

Reportable nonemployee compensation typically includes professional fees paid to consultants, accountants, web developers, and similar service providers; commissions paid to non-employee sales representatives; prizes and awards for services performed as a non-employee; and oil and gas payments for a working interest, whether or not services are performed. All of these go in Box 1 of Form 1099-NEC.³

When a contractor supplies materials or parts as part of the service (a plumber who replaces pipes, say), the full amount you paid — labor and materials combined — is reportable.

Form 1099-NEC also has a Box 2 checkbox for direct sales of $5,000 or more of consumer products to a buyer for resale outside a permanent retail location. You check the box; you do not enter a dollar figure.³

Which Payees Need One, and Which Don’t

You issue a 1099-NEC when you pay the threshold amount or more to individuals, sole proprietors, partnerships, and most limited liability companies (those taxed as partnerships or as disregarded entities). You confirm a vendor’s tax classification from the Form W-9 they provide before payment.³

Several categories of payees are generally exempt:

C corporations and S corporations, including LLCs that have elected corporate taxation.
Tax-exempt organizations, including 501(c)(3) entities, government agencies, and tax-exempt trusts such as IRAs and HSAs.³

One exception matters and catches people out: attorney fees. You must report payments for legal services on a 1099-NEC no matter how the firm is organized — corporation, LLC, partnership, or sole practitioner all trigger the form.³

Payments That Don’t Belong on a 1099-NEC

Some payments look like they belong on a 1099-NEC but don’t. The biggest source of confusion is payments made by credit card, debit card, or through a third-party settlement network such as PayPal or Venmo. Those payments are reported on Form 1099-K by the payment processor, not by you.³ If you pay a freelancer $3,000 through PayPal during 2026, you should not issue a 1099-NEC for that amount. Doing so creates a duplicate that complicates the contractor’s return.

This carve-out applies even when the contractor’s card and network payments fall below the 1099-K reporting threshold that applies to the processor (currently more than $20,000 and more than 200 transactions).⁴ The rule is about who is responsible, not about whether the processor ends up filing.

Also stay off the 1099-NEC:

Wages paid to employees. Those go on Form W-2.
Rent payments. Those go on Form 1099-MISC, Box 1.
Personal payments unrelated to your trade or business.

Confirm the Worker Is a Contractor, Not an Employee

Before you issue a 1099-NEC, be sure the payee is actually an independent contractor. Misclassifying a worker can create liability for unpaid employment taxes, penalties, and back wages. The IRS weighs three categories of evidence:⁵

Behavioral control: whether the business directs how and when the work is done.
Financial control: whether the worker has meaningful investment in their own tools, bears profit and loss risk, and works for other clients.
Type of relationship: whether there is a written contract, whether benefits are provided, and whether the work is an ongoing part of the business.

No single factor decides it. If you can’t tell, you can file Form SS-8 to request an IRS determination, though the process can take six months or longer.⁵

When 1099-NECs Are Due

The deadline for both furnishing Copy B to the contractor and filing Copy A with the IRS is January 31 of the year following payment.⁶ Unlike some other information returns, the 1099-NEC has one date for everything, and paper and electronic filers are on the same clock.

When January 31 falls on a weekend or legal holiday, the deadline shifts to the next business day.⁷ January 31, 2026 is a Saturday, so filings for 2025 payments are due February 2, 2026.

If you can’t meet the deadline, you can request a 30-day extension using Form 8809. For the 1099-NEC the extension is not automatic: you must submit a paper Form 8809 with a written explanation by the original due date, and only one 30-day extension is available.⁸ An approved extension moves the IRS filing date only. It does not extend the January 31 deadline for getting the form to the contractor.

Electronic filing is required once you have 10 or more information returns of any type for the year, counted across all form types combined.⁹ Many states also require their own copy; the IRS Combined Federal/State Filing Program forwards electronic 1099-NEC data to participating states, but not every state participates and some that do still require a direct filing.¹⁰ Check with your state tax agency to confirm.

What It Costs to Get It Wrong

The IRS charges penalties per form for late, incorrect, or missing 1099-NECs. For forms due in 2026:¹¹

Up to 30 days late: $60 per form.
31 days late through August 1: $130 per form.
After August 1, or never filed: $340 per form.
Intentional disregard: $680 per form, with no maximum cap.

These amounts apply separately to each form you fail to file correctly and to each payee statement you fail to furnish on time. Miss the deadline for 50 contractors and every form is on the meter. The intentional disregard tier, which applies when a business knowingly ignores its filing obligations, has no aggregate cap.¹¹ States may add their own penalties on top. Keep copies of the filed forms and the W-9s that supported them for at least three years.¹²

1
Internal Revenue Service. Publication 15 (2026), Employer’s Tax Guide
2
Office of the Law Revision Counsel. 26 USC 6041A – Returns Regarding Payments of Remuneration for Services and Direct Sales
3
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
4
Internal Revenue Service. Treasury, IRS Issue Proposed Regulations Reflecting Changes From the One, Big, Beautiful Bill
5
Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
6
Internal Revenue Service. About Form 1099-NEC, Nonemployee Compensation
7
Internal Revenue Service. Publication 509 (2026), Tax Calendars
8
Internal Revenue Service. Form 8809, Application for Extension of Time to File Information Returns
9
Internal Revenue Service. E-File Information Returns
10
Internal Revenue Service. Topic No. 804, FIRE System Test Files and Combined Federal/State Filing (CF/SF) Program
11
Internal Revenue Service. Information Return Penalties
12
Internal Revenue Service. How Long Should I Keep Records?