1099-NEC Filing for Small Businesses: Who Gets One, When, and How
By the I&S Accounting team
What Is a 1099-NEC?
If your business pays independent contractors, the IRS wants to know. The 1099-NEC ("Nonemployee Compensation") is the form you use to report what you paid people who aren't your employees — freelancers, consultants, and other contractors.
Who Needs a 1099-NEC?
For 2026 payments, the general federal threshold is $2,000 or more per payee in reportable business-service payments during the year. For 2025 payments, it was $600. The payment year controls, even when you prepare the form or a correction later. See our 2026 threshold update and examples, based on the IRS reporting guide.
A few key points:
- It's for services, not goods.
- It typically applies to individuals, sole proprietors, and partnerships — most payments to corporations are excluded (with some exceptions, such as attorneys).
- Payment card and covered third-party network transactions generally fall under the payment settlement entity's 1099-K rules. Do not also include them on your 1099-NEC, even if the platform does not issue a form. Identify the transaction type rather than assuming every app transfer qualifies.
- Backup withholding can require reporting regardless of payment amount. Check state filing requirements separately.
Collect a W-9 First
Before you pay a contractor — ideally before the first check — get a completed Form W-9. It gives you their legal name, address, and taxpayer ID, which is exactly what you need to file an accurate 1099 later. Chasing W-9s in January is a yearly headache you can avoid by collecting them up front.
The Deadline Matters
1099-NEC forms generally must be sent to both the contractor and the IRS by January 31 of the following year, moving to the next business day for weekends and legal holidays. For 2026 payments, the standard deadline is February 1, 2027, absent applicable relief. Confirm the relevant year's deadline and keep contractor payment totals current throughout the year.
Penalties for Getting It Wrong
Late or missing 1099s carry per-form penalties that climb the longer you wait. Filing wrong information — or skipping a required form — can add up quickly across multiple contractors.
How Good Bookkeeping Makes This Easy
When your books tag contractor payments correctly throughout the year and you've collected W-9s as you go, 1099 season is a quick export — not a scramble. That's how it should be.
Frequently asked questions
For 2026 payments, the general federal threshold is $2,000 or more in reportable business-service payments to a nonemployee during the year; the threshold for 2025 payments was $600. Most payments to corporations are exempt, with exceptions such as legal services. Backup withholding and state rules can require reporting below the general threshold.
The normal deadline for both the IRS filing and the contractor copy is January 31 of the following year, moving to the next business day when it falls on a weekend or legal holiday. For 2026 payments, the standard deadline is February 1, 2027, absent applicable relief.
Payment card and covered third-party network transactions generally fall under the payment settlement entity's 1099-K rules and are not also reported by your business on 1099-NEC, even if the platform does not issue a form. Check the transaction type; an ordinary bank transfer is not automatically a covered network transaction.
Collect a completed Form W-9 — ideally before the first check. It gives you the contractor's legal name, address, and taxpayer ID, which is exactly what you need to file an accurate 1099 in January.
