Who Should Receive a 1099: Thresholds, Exemptions, and Card Payments

In the course of running a trade or business, you should issue a 1099 to any individual, sole proprietor, partnership, or LLC (other than one taxed as a corporation) you paid $600 or more during the year for services, rent, prizes, or other qualifying income, plus $10 or more in royalties. Attorneys and medical providers receive a 1099 even if they operate as a corporation. Employees, incorporated vendors (with those two exceptions), tax-exempt organizations, and anyone you paid by credit card or through a third-party payment app are not on the list.

The Trade or Business Test Comes First

Before worrying about thresholds, ask whether the payment was a business expense at all. The 1099 obligation only applies to payments made in the course of your trade or business. Hire a plumber to fix pipes at your home and you owe them nothing on paper. Hire the same plumber to work on a rental property you own as a business and a 1099-NEC is required once you’ve paid $600 or more in the year.¹

The rule applies broadly across payer types. Sole proprietors, partnerships, corporations, trusts, and nonprofits all have to file when they make qualifying payments. Nonprofit organizations are considered engaged in a trade or business for this purpose.²

Independent Contractors Are the Typical Recipient

Most 1099s go to independent contractors: people who perform services for your business but are not your employees. The distinction turns on control. If you direct only the result of the work and not how or when it gets done, the worker is generally a contractor. Freelance designers, IT consultants, maintenance professionals, and other service providers who use their own tools and set their own schedules usually fit.³

Misclassifying an employee as a contractor is expensive. If the IRS reclassifies the worker, you can owe back employment taxes, penalties, and interest. The Voluntary Classification Settlement Program lets businesses reclassify workers going forward with reduced penalties, but only if you’ve consistently filed 1099s for those workers over the prior three years and aren’t currently under employment tax audit.⁴

Dollar Thresholds by Payment Type

The threshold depends on what the payment was for, not who received it. Totals refer to all payments to a single recipient during the calendar year, not per transaction.

Form 1099-NEC: $600 for Services

File a 1099-NEC for any person you paid $600 or more for services performed as a non-employee during the year. That covers freelancers, independent contractors, and other service providers. Legal fees for an attorney’s own services also go here, regardless of the attorney’s business structure.²

Form 1099-MISC: Multiple Thresholds

Form 1099-MISC covers several categories with different floors:⁵

$600 or more: rent (including office space), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, and gross proceeds paid to an attorney in connection with a legal settlement.
$10 or more: royalties from copyrights, patents, mineral rights, or similar property, and broker payments in lieu of dividends or tax-exempt interest.⁶
$5,000 or more: direct sales of consumer products to a buyer for resale outside a permanent retail establishment.

Attorneys and Medical Providers Always Get One

Payments to attorneys and to medical or health care providers follow stricter rules than most categories. The corporate exemption that normally releases you from issuing a 1099 to a C-corp or S-corp does not apply to these two types of payments.¹

For attorneys, there are two separate reporting categories. Fees of $600 or more paid for an attorney’s own legal services go in Box 1 of Form 1099-NEC. Gross proceeds of $600 or more paid to an attorney in connection with a settlement (where the payment isn’t for the attorney’s services but passes through the attorney to a client) go in Box 10 of Form 1099-MISC. So if an insurance company pays $100,000 to a claimant’s attorney to settle a claim, the insurer reports the full $100,000 as gross proceeds in Box 10 and does not separately report the attorney’s fees taken out of that amount.²

For medical and health care providers, report $600 or more in Box 6 of Form 1099-MISC even if the provider is incorporated. Payments to pharmacies for prescriptions and to tax-exempt or government-owned hospitals are excluded.⁶

Who Does Not Receive a 1099

Even when payments cross the threshold, certain recipients are off the list.

C-corporations and S-corporations. Payments to incorporated businesses generally do not require a 1099, subject to the attorney and medical exceptions above.¹
Tax-exempt organizations under Section 501(c), the U.S. government, state and local governments, and foreign governments.²
Employees. Wages go on a W-2, not a 1099.

LLCs sit in the middle and deserve extra attention. A single-member LLC taxed as a disregarded entity is treated like a sole proprietorship and should receive a 1099.⁷ An LLC that has elected to be taxed as a corporation falls under the corporate exemption. The name alone won’t tell you which; the payee’s W-9 will.

Payments by Credit Card or Payment App Are Excluded

If you paid a contractor by credit card, debit card, or through a third-party payment network such as PayPal or Venmo, do not put that payment on a 1099-NEC or 1099-MISC. Those transactions are reported by the payment settlement entity on Form 1099-K.²

The federal threshold for 1099-K reporting is $20,000 in gross payments and more than 200 transactions per payee during the year.⁸ If you paid the same contractor partly by check and partly through a payment app, only the check payments count toward your $600 test for the 1099-NEC. Including the card or app payments would create a duplicate record.

Confirm the Answer with a W-9

The reliable way to know whether a specific vendor should receive a 1099 is to get a completed Form W-9 before you make the first payment. The W-9 captures the payee’s legal name, any business name, federal tax classification (individual, LLC, corporation, and so on), and taxpayer identification number.⁹ That classification line tells you whether the corporate exemption applies. The TIN gives you what you need to file a correct return later.¹⁰

If a payee refuses to provide a correct TIN, or if the IRS notifies you that the payee previously underreported interest or dividend income, you must withhold 24% of each payment as backup withholding and remit it to the IRS until the issue is resolved.¹¹ Building the W-9 into your vendor onboarding, before any check goes out, is the cleanest way to avoid guessing at 1099 time.

1
Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return
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Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
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eCFR. 26 CFR 1.6041-1 – Return of Information as to Payments of $600 or More
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Internal Revenue Service. Voluntary Classification Settlement Program
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Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information
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Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025)
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Internal Revenue Service. Single Member Limited Liability Companies
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Internal Revenue Service. Treasury, IRS Issue Proposed Regulations Reflecting Changes to the Threshold for Backup Withholding on Certain Payments Made Through Third Parties
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Internal Revenue Service. Instructions for the Requester of Form W-9
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Internal Revenue Service. U.S. Taxpayer Identification Number Requirement
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Internal Revenue Service. Backup Withholding