1099-NEC Rules: Who You Must Send One To (and the Penalties If You Don't)
If you pay contractors, the 1099-NEC is one of those small compliance chores that quietly carries real penalties. The rules also just changed, so here's what you actually need to do.
Direct answer: You must send a Form 1099-NEC to any unincorporated contractor or vendor you paid for business services above the reporting threshold during the year. For 2025 payments that threshold is $600; for 2026 payments it rises to $2,000 under the One Big Beautiful Bill Act. Forms are due to the recipient and the IRS by January 31. Miss it and penalties run from roughly $60 to $340+ per form.
Who do I have to send a 1099-NEC to?
Send a 1099-NEC when all of these are true. You paid someone:
- for services (not goods) used in your trade or business,
- who is not your employee,
- who is an individual, sole proprietor, partnership, or LLC taxed as one (not a corporation, with limited exceptions),
- above the reporting threshold for the year, and
- not by credit card or third-party network (those payments are reported on 1099-K by the processor, not by you).
Common examples: a freelance designer, a subcontractor, a bookkeeper, a consultant, a cleaning service that's a sole proprietor, or your unincorporated landlord (rent goes on 1099-MISC, a close cousin).
Who you usually DON'T 1099
- Corporations (S-corps and C-corps) — with a key exception: attorneys always get a 1099 even if incorporated.
- Employees — they get a W-2.
- Payments made by credit card, debit card, or PayPal/Stripe/Square — the processor reports those.
- Payments for merchandise, inventory, or physical products.
What's the 1099-NEC threshold — and what changed?
This is the part that trips people up in 2026, because the number is moving.
| Payments made during | Reporting threshold | Forms due |
|---|---|---|
| 2025 tax year | $600 or more | January 31, 2026 |
| 2026 tax year | $2,000 or more | January 2027 |
| 2027 and later | $2,000, indexed for inflation | Following January |
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, raised the long-standing $600 threshold to $2,000 beginning with payments made in 2026 — the first meaningful change in decades. Starting in 2027, that $2,000 figure will be adjusted for inflation.
Two things to keep straight:
- The threshold is per payer, per year. If you paid a contractor $2,100 across the year in 2026, you issue a 1099 — even if it came in five separate checks.
- Income is taxable regardless. If you pay a contractor $1,500 in 2026 and don't issue a 1099, the contractor still owes tax on that $1,500. The threshold governs reporting, not taxability.
Related change: the 1099-K threshold reverted to the older rule — more than $20,000 and more than 200 transactions — starting with the 2025 tax year.
When are 1099s due?
January 31. That single date covers both copies:
- Copy B to the recipient (the contractor), and
- Copy A to the IRS.
For 2025 payments, that's January 31, 2026. There's no automatic extension for 1099-NEC, so this is a hard deadline. Note it lands before your own business return — which is why gathering contractor info is on our small-business tax prep checklist.
What are the penalties for not filing?
The IRS penalty scales with how late you are, charged per form — so a stack of missed 1099s adds up fast:
| How late | Approximate penalty per form |
|---|---|
| Up to 30 days late | ~$60 |
| 31 days late to August 1 | ~$130 |
| After August 1 or not filed | ~$340 |
| Intentional disregard | ~$680+ (no maximum) |
"Per form" often means double, too — one penalty for the copy you owed the IRS and one for the copy you owed the contractor. And filing an incorrect form (wrong TIN, wrong amount) can draw its own penalty. These figures are indexed and adjust periodically, but the structure holds: late and missing 1099s are cheap to fix and expensive to ignore.
The one habit that prevents all of this
Collect a Form W-9 before you pay a new contractor — not at year-end when they've moved on and stopped answering emails. The W-9 gives you the contractor's legal name, taxpayer ID number, and entity type (which tells you whether they're a corporation you can skip). No W-9 also triggers backup withholding rules, where you're supposed to withhold 24% of the payment.
Set up a simple rule in your business: no W-9, no payment. It's the single cleanest way to make January painless.
The bottom line
1099-NECs aren't complicated, but they are unforgiving on timing. Know your threshold ($600 for 2025 payments, $2,000 for 2026), collect W-9s upfront, and file by January 31. If you're staring at a pile of contractor payments and aren't sure who needs a form, that's a quick thing for a CPA to sort out.
Our tax preparation service handles 1099 filing as part of year-end so you don't have to think about thresholds and deadlines. Book a consultation if you'd like us to take it off your plate.
This is general information, not tax advice. Penalty amounts are periodically adjusted for inflation and specific situations vary — confirm current figures with a CPA.
Frequently asked questions
Who do I have to send a 1099-NEC to? Any non-employee (contractor, freelancer, or unincorporated vendor) you paid for business services above the reporting threshold during the year. You generally don't issue one to corporations or for payments made by credit card.
What is the 1099-NEC threshold for 2025 and 2026? For 2025 payments (forms due January 31, 2026), the threshold is $600. For payments made in 2026 (forms due in early 2027), the threshold rises to $2,000 under the One Big Beautiful Bill Act.
When are 1099-NEC forms due? 1099-NEC forms are due to both the recipient and the IRS by January 31. For 2025 payments, that deadline is January 31, 2026.
What's the penalty for not filing a 1099? Penalties run from about $60 to $340 per form depending on how late you are, and can reach $680+ per form for intentional disregard, with no maximum in that case.
Do I need a W-9 from my contractors? Yes. Collect a signed Form W-9 before you pay a contractor. It gives you the legal name, TIN, and entity type you need to file an accurate 1099 — and protects you from backup withholding issues.