Overview
Quick Answer
If your business paid an independent contractor $600 or more during the tax year, you must file Form 1099-NEC with the IRS and provide a copy to the contractor by January 31. This applies to non-employee compensation, rent, royalties, and certain other payments. Missing deadlines can trigger penalties starting at $60 per form — and they escalate the longer you wait.
Who Needs to File a 1099?
The 1099 filing requirement applies to any trade or business that makes reportable payments of $600 or more during the calendar year. This includes sole proprietors, partnerships, LLCs, S corporations, and C corporations. Here is who typically receives one:
- Independent contractors and freelancers — anyone you paid $600+ for services, and who is not your employee (Form 1099-NEC)
- Landlords — rent payments of $600+ for office space, equipment, or machinery (Form 1099-MISC)
- Attorneys — legal fees of $600+, regardless of whether the law firm is incorporated (Form 1099-NEC)
- Royalty recipients — royalty payments of $10 or more (Form 1099-MISC)
- Other income — prizes, awards, and certain other payments (Form 1099-MISC)
Importantly, payments to corporations are generally exempt from 1099 reporting — with one major exception: legal fees paid to incorporated law firms must still be reported on Form 1099-NEC. Payments made via credit card or third-party networks (like PayPal) are reported by the payment processor on Form 1099-K, so you do not need to issue a 1099-NEC for those amounts.
1099-NEC vs. 1099-MISC: Which Form Do You Need?
The IRS reinstated Form 1099-NEC in 2020 specifically for non-employee compensation. Here is a breakdown:
| Payment Type | Form | Threshold |
|---|---|---|
| Non-employee compensation (contractors, freelancers) | 1099-NEC | $600 |
| Attorney fees (even if incorporated) | 1099-NEC | $600 |
| Rent | 1099-MISC | $600 |
| Royalties | 1099-MISC | $10 |
| Prizes and awards | 1099-MISC | $600 |
| Medical and health care payments | 1099-MISC | $600 |
| Fishing boat proceeds | 1099-MISC | $600 |
A common mistake: businesses sometimes issue 1099-MISC for contractor payments because they are used to the old system (pre-2020). This can trigger IRS matching notices. Use 1099-NEC for all non-employee compensation.
Key Filing Deadlines for 2026
Missing a deadline is the most common — and most expensive — 1099 mistake. Here are the critical dates:
- January 31: Deadline to furnish Copy B of Form 1099-NEC to recipients (contractors) — this is a hard deadline with no automatic extension
- January 31: Deadline to e-file Form 1099-NEC with the IRS
- January 31: Deadline to furnish Form 1099-MISC (if reporting non-employee compensation in Box 7 — but you should use 1099-NEC instead)
- February 15: Deadline to furnish Form 1099-MISC to recipients (for other reportable payments)
- February 28: Deadline to paper-file Form 1099-MISC with the IRS
- March 31: Deadline to e-file Form 1099-MISC with the IRS
If any deadline falls on a weekend or federal holiday, it shifts to the next business day. Businesses filing 10 or more information returns (combined across all 1099 types) are required to e-file through the IRS FIRE (Filing Information Returns Electronically) system.
How to Collect W-9 Information from Contractors
Before you can issue a 1099, you need the contractor's Taxpayer Identification Number (TIN) — either a Social Security Number (SSN) or Employer Identification Number (EIN). The best practice is to collect Form W-9 before making the first payment. Trying to chase down W-9s in January is painful and often unsuccessful.
Here is a simple workflow:
- Send Form W-9 to every new contractor as part of your onboarding process
- Verify the name matches IRS records — the name on the W-9 must match the name associated with the TIN at the IRS. For individuals, this is typically their legal name as it appears on their Social Security card
- Store completed W-9s securely — you are collecting sensitive information and should treat it accordingly
- Flag any contractor who refuses to provide a W-9 — you may need to initiate backup withholding at a rate of 24%
If a contractor provides an incorrect TIN, the IRS may send you a CP2100 or CP2100A notice. You will then have to send a "B" notice to the contractor and begin backup withholding on future payments until they provide a correct TIN.
1099 Filing Penalties (2026)
Penalties for late or incorrect 1099 filings are per form and increase over time:
| If You File Correctly Within... | Penalty Per Form | Annual Maximum |
|---|---|---|
| 30 days of the due date | $60 | $233,000 |
| 31 days late through August 1 | $120 | $665,000 |
| After August 1 or not at all | $310 | $1,329,000 |
| Intentional disregard | $630+ | No limit |
Small businesses (average annual gross receipts of $5 million or less for the three most recent tax years) benefit from reduced maximum penalties. The penalty for failing to furnish a correct payee statement (Copy B to the contractor) carries identical penalty amounts — so a single late form typically triggers two penalties: one for not filing with the IRS and one for not providing Copy B to the payee.
Common 1099 Mistakes and How to Avoid Them
Mistake 1: Not collecting W-9s upfront. This is the root cause of most 1099 problems. Make W-9 collection a non-negotiable part of your contractor onboarding. No W-9, no payment. See our tax compliance guide for independent contractors for a deeper dive on worker classification and documentation.
Mistake 2: Using 1099-MISC instead of 1099-NEC for contractor payments. Since 2020, non-employee compensation belongs on Form 1099-NEC. Using the old form can cause IRS matching errors and delay processing.
Mistake 3: Filing late because you forgot about the January 31 deadline. Unlike other tax deadlines, there is no automatic extension for furnishing 1099-NEC forms to recipients. Mark this date on your calendar — or better yet, set a recurring reminder. You can reference our tax compliance calendar guide to stay on top of all deadlines.
Mistake 4: Issuing 1099s to corporations unnecessarily. Payments to corporations (C corps and S corps) are generally exempt — except for legal fees, medical payments, and certain other specific categories. Sending unnecessary 1099s creates confusion and wastes time. But remember: LLCs are not corporations for this purpose — unless they elected to be taxed as one and provided you with documentation.
Mistake 5: Misclassifying employees as contractors. This is the most expensive mistake. If the IRS reclassifies your contractors as employees, you face back payroll taxes, penalties, and interest — plus potential liability for benefits. The distinction between employee and independent contractor hinges on behavioral control, financial control, and the relationship type. Refer to our self-employment tax guide for more on how classification affects tax obligations on both sides.
State 1099 Filing Requirements
Many states participate in the Combined Federal/State Filing (CF/SF) Program, which means the IRS forwards 1099 data to participating states — so you generally do not need to file separately with those states. However, some states do not participate and require direct filing. Check your state's requirements, as non-participating states have their own deadlines and penalty structures.
States that typically require direct 1099 filing include those with state income taxes that do not participate in the CF/SF program. If you have contractors in multiple states, you may have multiple filing obligations.
1099 Compliance Checklist for Small Businesses
- Identify all reportable payees — review your accounts payable ledger for any individual or unincorporated business paid $600+ during the year
- Collect W-9s — ensure you have a valid W-9 on file for every contractor before issuing payment
- Verify TINs — use the IRS TIN Matching service (available through e-services) to pre-validate TINs before filing
- Prepare forms early — do not wait until late January; start preparing in December
- File by January 31 — submit 1099-NEC to the IRS and furnish copies to contractors
- Retain records — keep copies of filed 1099s and W-9s for at least 4 years
- Respond to IRS notices promptly — if you receive a CP2100 notice about TIN mismatches, act quickly to avoid escalating penalties
Staying on top of 1099 compliance protects your business from penalties and keeps your contractor relationships smooth. For more on estimated payments and broader tax obligations, see our estimated tax payments guide and our tax compliance calendar.
