Do I need to issue a 1099-NEC to my contractors?

A business generally must issue Form 1099-NEC to each unincorporated person or firm it paid for services during the year once total payments reach the reporting threshold. Collect a Form W-9 before you pay anyone, file the 1099-NEC with the recipient and the IRS by the deadline, and keep the W-9 on file.

For tax year 2025

$600 (Form 1099-NEC reporting threshold, 2025)

Key points

A business must file Form 1099-NEC for each unincorporated person or firm it paid for services once the year's total payments reach the reporting threshold.
Collect Form W-9 from every contractor before the first payment to obtain the legal name, taxpayer identification number, and entity type.
Payments to most corporations are exempt from 1099-NEC reporting, with specific exceptions such as attorney fees.
Payments made by credit card or through a third-party payment network are reported by the processor on Form 1099-K, not by the payer on a 1099-NEC.
Form 1099-NEC is due to both the recipient and the IRS by the end of January, and penalties rise the longer a filing is late.

Who must receive a Form 1099-NEC?

Form 1099-NEC reports non-employee compensation: what a business paid independent contractors, freelancers, and unincorporated service providers during the year in the course of its trade or business. The obligation sits with the payer under section 6041, and a business files one for each payee whose total payments for services reached the reporting threshold.

It is one of the cleanest audit signals there is. The IRS matches the 1099s a business files against the contractor expense it deducts, and a large contractor deduction with few or no 1099-NECs behind it is a routine examination trigger.

What do you need to collect before paying a contractor?

The practical rule is to collect a Form W-9 from every contractor before the first payment, not after. The W-9 gives you the legal name, taxpayer identification number, and entity type you need to decide whether a 1099-NEC is required and to file it correctly.

If a contractor refuses to provide a taxpayer identification number, the payer is required to apply backup withholding at a flat rate and remit it to the IRS. Chasing a W-9 in January, after the work is done and the contractor has moved on, is where this goes wrong.

Which payments are exempt from 1099-NEC reporting?

Payments to most corporations, including S-corporations, are exempt, with specific exceptions such as attorney fees, which are reported regardless of entity type. Payments made by credit card or through a third-party payment network are reported by that processor on Form 1099-K instead, so the payer does not issue a 1099-NEC for them.

Payments for goods rather than services are not reported on a 1099-NEC, and rent goes on Form 1099-MISC. Amounts below the reporting threshold do not require a form, but the underlying expense is still deductible if it is ordinary, necessary, and documented.

What are the deadlines and what happens if you get it wrong?

Form 1099-NEC is due to both the recipient and the IRS by the end of January following the payment year, with no automatic extension. Penalties per form rise the longer a filing is late, and a separate, much higher penalty applies for intentional disregard of the requirement.

The related exposure is worker classification. Issuing a 1099-NEC does not make a worker a contractor; a person who works like an employee under the common-law control test can trigger back payroll tax, penalties, and interest regardless of the form issued. That question belongs in the same conversation as the 1099 filing, ideally before the first payment.