Pay a US contractor for services and you likely owe the US Internal Revenue Service (IRS) a Form 1099-NEC. The rules just changed. For 2025 payments, the reporting threshold is $600, and those forms are due February 2, 2026. For 2026 payments, the One Big Beautiful Bill Act (OBBBA) raised the threshold to $2,000, and those forms are filed in early 2027.
This guide covers who must file, what to report, deadlines, penalties, and the cross-border rules most guides skip. The authoritative source is the IRS Instructions for Forms 1099-MISC and 1099-NEC.
What Is IRS Form 1099-NEC?
Form 1099-NEC reports nonemployee compensation: payments for services made in the course of a trade or business to people who are not your employees. The IRS reintroduced the form in 2020 after splitting it out of Form 1099-MISC Box 7, per the IRS Instructions for Forms 1099-MISC and 1099-NEC. Five conditions trigger it.
- The payment is for services, not goods or merchandise.
- The payment is made in the course of a trade or business.
- The recipient is a non-employee.
- The total meets the dollar threshold for the year.
- The recipient is generally a US person.
Typical recipients include freelance developers, designers, marketing consultants, accountants, bookkeepers, legal advisors, sales contractors, US-based remote contractors, and directors receiving director fees. For the sister form, see our 1099-MISC vs 1099-NEC guide.
What Is the 1099-NEC Filing Threshold for 2026?
For payments made in tax year 2026, the 1099-NEC threshold is $2,000, up from $600. OBBBA (Public Law 119-21, enacted July 4, 2025) raised it, effective for payments made after December 31, 2025, per IRS Notice 2025-62. The amount is indexed for inflation starting in 2027. Timing trap: payments made in calendar 2025 and filed in early 2026 still use $600.
| Tax year (payment year) | Reporting threshold | Forms filed | Source |
|---|---|---|---|
| 2024 | $600 | January 2025 | IRS Instructions for Forms 1099-MISC and 1099-NEC |
| 2025 | $600 | February 2, 2026 | IRS General Instructions for Certain Information Returns |
| 2026 | $2,000 | Early 2027 | OBBBA §70433 (H.R. 1); IRS Notice 2025-62 |
| 2027 and after | $2,000, indexed for inflation | Following January | OBBBA §6041(h); IRS Publication 1099 |
The threshold is per contractor per year, not per payment. Pay a contractor $300 in March and $400 in August of 2025, and the $700 total crosses the $600 threshold, so you file. Under the 2026 rule, that same $700 stays below $2,000, so no 1099-NEC is required.
Who Needs to File a 1099-NEC?
Any trade or business that pays a non-employee $600 or more (2025) or $2,000 or more (2026) for services must file Form 1099-NEC. This includes C-corporations, S-corporations, LLCs, partnerships, sole proprietors, nonprofits, and US subsidiaries of foreign companies, per the IRS Instructions for Forms 1099-MISC and 1099-NEC.
What Are the 1099-NEC Requirements for a Delaware C-Corp?
A foreign-owned US entity must file 1099-NEC forms for its US contractors, and foreign ownership does not exempt it. A founder in Europe, Asia, or Latin America who runs a Delaware C-corporation and pays US-based contractors carries the same filing duty as any domestic business under IRC §6041A. Most competitor guides ignore this scenario.
What Payments Must Be Reported on a 1099-NEC?
Reportable payments are service payments made directly in the course of your business. Common categories include professional services, consulting fees, commissions, referral fees, director fees, contractor retainers, and cash payments for services, per the IRS Instructions for Forms 1099-MISC and 1099-NEC.
Payments made by credit card, debit card, PayPal, Stripe, or another third-party processor are excluded here. The processor reports those on Form 1099-K instead, which avoids double reporting. The full comparison follows below.
When Do You Not Need to File a 1099-NEC?
No 1099-NEC is required when the contractor is a C-corporation or S-corporation, the payment falls under the threshold, the payment was for goods, merchandise, freight, or storage, the payment ran through a card or third-party processor, the worker is a W-2 employee, or the contractor is a documented non-US person.
- Legal fees are the key exception: attorney fees are reportable even to an incorporated law firm.
- The IRS expects documentation for each exemption, so keep the W-9 or W-8 on file as evidence.
Do You Send a 1099-NEC to an LLC?
It depends on the LLC’s federal tax classification, which the contractor declares on Form W-9. An LLC taxed as a sole proprietorship or partnership gets a 1099-NEC. An LLC that elected C-corporation or S-corporation taxation is generally exempt, with the legal-services carve-out, per the IRS Instructions for Forms 1099-MISC and 1099-NEC.
| LLC tax classification | 1099-NEC required? | How you know |
|---|---|---|
| Sole proprietorship / disregarded entity | Yes | W-9 classification box |
| Partnership | Yes | W-9 classification box |
| C-corp or S-corp election | Generally no (legal fees still reportable) | W-9 classification box |
1099-NEC vs 1099-K: What Is the Difference?
Form 1099-NEC is filed by the business that pays a contractor directly. Form 1099-K is filed by the payment processor for card and platform transactions, which prevents double reporting. Rule of thumb: if you paid a contractor by card or platform, you do not issue a 1099-NEC for those amounts.
| Feature | 1099-NEC | 1099-K |
|---|---|---|
| Who files | The business paying the contractor | The payment processor (card networks, platforms) |
| Covers | Direct payments (cash, check, ACH) for services | Card and third-party network payments |
| Threshold | $600 (2025), $2,000 (2026) | TPSOs: over $20,000 and 200 transactions; payment cards: no minimum |
| Source | IRS Instructions for Forms 1099-MISC and 1099-NEC | IRS Form 1099-K FAQs |
Under OBBBA, third-party settlement organizations (TPSOs) like payment apps report on Form 1099-K only above $20,000 and 200 transactions, per the IRS Form 1099-K FAQs (Fact Sheet 2025-08). Payment card transactions have no dollar minimum.
1099-NEC vs W-2: Is Your Worker a Contractor or an Employee?
The form follows the classification, never the reverse. IRS common-law rules decide employee versus contractor status: behavioral control, financial control, and the relationship. Issuing a 1099-NEC does not cure misclassification. Treating an employee as a contractor exposes you to back payroll taxes and penalties.
For the full test and consequences, see our 1099 vs W-2 guide. File Form SS-8 if you need the IRS to determine a worker’s status.
Why Do You Need Form W-9 Before Paying a Contractor?
Collect Form W-9 before the first payment. It supplies the contractor’s legal name, federal tax classification, and Taxpayer Identification Number (TIN), which is a Social Security number or Employer Identification Number. Without a correct TIN, you cannot file accurately and may owe backup withholding.
If a contractor refuses to provide a TIN, or the IRS notifies you the TIN is incorrect, you must withhold 24% of payments and remit it, per the IRS backup withholding rules. The IRS TIN Matching program lets you verify name and TIN combinations against IRS records before filing, catching mismatches that would otherwise trigger CP2100 notices and backup withholding. For foreign contractors, collect Form W-8BEN or W-8BEN-E instead. See our Form W-9 guide for the collection workflow.
Do You File a 1099-NEC for Foreign Contractors?
Generally no. A non-US person performing services outside the United States gets no 1099-NEC. You still collect Form W-8BEN (individuals) or W-8BEN-E (entities) to document foreign status. If a foreign person performs services inside the US, different rules apply: up to 30% withholding and reporting on Form 1042-S, sometimes reduced by a tax treaty.
This cross-border distinction is where most guides stop short. The W-8 form is your evidence that no 1099-NEC was required, so keep it on file rather than filing it with the IRS.
When Is the 1099-NEC Deadline?
January 31 following the payment year, for both the IRS copy and the contractor copy. Because January 31, 2026 falls on a Saturday, forms for 2025 payments are due Monday, February 2, 2026, per the IRS General Instructions for Certain Information Returns. Form 1099-NEC has no automatic filing extension.
How Do You File a 1099-NEC Electronically?
File free through the IRS Information Returns Intake System (IRIS), through approved software, or through an accounting provider. E-filing is mandatory if you file 10 or more information returns in aggregate, per Treasury Decision T.D. 9972, effective for returns filed on or after January 1, 2024.
- Collect W-9s (or W-8s) from every contractor before paying.
- Verify TINs through the IRS TIN Matching program.
- Total each contractor’s payments and apply the correct threshold year.
- Complete Box 1 (nonemployee compensation) and Box 4 (any backup withholding).
- Submit to the IRS and furnish contractor copies by the deadline.
To file on paper, submit the scannable red-ink Copy A with Form 1096 as the transmittal summary. You cannot print Copy A from the web.
What Are the Penalties for Late 1099-NEC Filing?
Penalties apply per form and scale with lateness for returns due in 2026. They run from about $60 within 30 days to $340 after August 1, with intentional disregard at $680 or more per form, per the IRS General Instructions for Certain Information Returns.
| Filing delay | Penalty per form | Source |
|---|---|---|
| Up to 30 days late | $60 | IRS General Instructions for Certain Information Returns |
| 31 days late through August 1 | $130 | IRS General Instructions for Certain Information Returns |
| After August 1 or not filed | $340 | IRS General Instructions for Certain Information Returns |
| Intentional disregard | $680+ (no cap) | IRS General Instructions for Certain Information Returns |
Penalties apply separately to the IRS filing and the payee statement. One missed contractor can double the hit.
How Do You Correct a 1099-NEC After Filing?
File a corrected return promptly. Check the Corrected box, send the updated copy to the contractor, and file the corrected version with the IRS through IRIS if you e-filed. Common corrections cover a wrong TIN, a wrong dollar amount, or a wrong recipient. Prompt correction reduces penalty exposure.
What Are the Most Common 1099-NEC Mistakes?
The top errors are skipping the W-9, misclassifying workers, and double-reporting card payments. The full list:
- Not collecting a W-9 first, which risks bad TINs, CP2100 notices, and a 24% backup withholding obligation you must fund if you failed to withhold.
- Misclassifying employees as contractors, which triggers back payroll taxes and penalties.
- Double-reporting payments already covered by Form 1099-K.
- Ignoring state 1099 requirements, since many states require separate filings or participate in the Combined Federal/State Filing program.
- Using the wrong threshold year, the $600 versus $2,000 timing trap.
- Skipping W-8 documentation for foreign contractors.
How Commenda Helps With 1099-NEC Compliance
Know your threshold year, collect W-9s and W-8s up front, and file by February 2, 2026 for 2025 payments. Commenda’s corporate tax and bookkeeping service handles your federal information reporting and contractor documentation, and Commenda’s entity management platform keeps foreign founders running US entities compliant across jurisdictions. Track every filing date with the Commenda compliance calendar, and confirm each contractor’s tax ID with Commenda’s global tax ID verification.
Book a demo to get your US contractor reporting obligations mapped before the February 2 deadline.
