What it means
Form 1099-NEC is an IRS information return. NEC stands for nonemployee compensation, meaning pay for services from someone who isn't on your payroll, such as a freelancer or consultant. You don't pay any tax with it. It tells the IRS and the contractor how much you paid them, so the IRS can match it to the contractor's own return.
Employees get a W-2 instead, and payroll withholds tax from their pay. Contractors handle their own taxes, which is why the IRS wants a record of what they were paid.
Before the first payment, the contractor fills in Form W-9 with their legal name, tax classification and taxpayer ID. Through the year, each payment is tagged to that contractor in your books. After year end you total each contractor's payments, and anyone paid $2,000 or more (for payments made in 2026 or later) gets a 1099-NEC. Copies go to the contractor and the IRS by January 31, or the next business day when that falls on a weekend, so forms for 2026 are due February 1, 2027.
If a contractor won't give you a taxpayer ID, you withhold 24% backup withholding from each payment and file a 1099-NEC whatever the amount.
Some payments are left out. Payments made by card or through a payment platform are reported by the platform on Form 1099-K. Corporations are generally exempt, except for legal services. Foreign contractors working outside the US give you a W-8BEN or W-8BEN-E and usually don't get one.
In March 2026 Acme pays a US freelance developer $5,000 by bank transfer. The W-9 is already on file and shows the developer as an individual. Acme records contractor expense, tagged to that developer.
The developer does more work in the fall, bringing the year's total to $9,000. In January Acme runs a report of payments by contractor, sees $9,000, and files a 1099-NEC for that amount by January 31. Had the 2026 total been $1,500, it would fall under the $2,000 threshold and no form would be required.
Whether someone is really a contractor depends on how the work is controlled, and filing a 1099 doesn't settle that question. The payment data comes from the same books that feed Form 1120, so tagging payments as they happen is far easier than rebuilding them in January.
Why it matters. It's due to the contractor and the IRS by January 31, and you can't fill it in without each contractor's W-9. Late or missing forms draw a penalty per form.
Try it with your numbers
Change any number. The working below updates as you type.
File if total paid in the year ≥ threshold ($600 for payments in 2025 and earlier, $2,000 from 2026), unless exemptForm 1099-NEC
File it
How it’s worked out
- 1Threshold for payments made in 2026$2,000 or more (payments after Dec. 31, 2025)$2,000.00
- 2Paid this year$9,000.00 ≥ $2,000.00?Yes
- 3ExemptionAt or over the threshold, and no exemption applies.None
Copies go to the contractor and the IRS by January 31 of the next year.
The entry, worked
Acme pays a US freelance developer $5,000 by bank transfer for work in March. The developer's W-9 is on file.
| Account | Debit | Credit |
|---|---|---|
| Contractor expense | $5,000.00 | |
| Cash | $5,000.00 | |
| Total | $5,000.00 | $5,000.00 |
The payment is tagged to the contractor, so the year-end total per payee comes straight from the books.
Common questions
Do I send a 1099-NEC to a contractor that is a corporation?
Generally not. Payments to corporations, including LLCs taxed as corporations, are usually exempt. Payments for legal services are the common exception, so check each payee's W-9.
Do foreign contractors get a 1099-NEC?
Usually not. A foreign contractor gives you a W-8BEN (W-8BEN-E for a company) instead of a W-9. Pay for work done entirely outside the US is foreign-source income, so it generally isn't reported on a 1099-NEC.
What is the reporting threshold?
$2,000 or more paid to one contractor in a calendar year, for payments made after December 31, 2025. For payments made in 2025 and earlier it was $600. The IRS can adjust the $2,000 for inflation starting in 2027.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- First-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.Guide · 5 min
- Contractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.Guide · 4 min
- Form 1099-NEC for startups: threshold, deadline, e-filingWho gets a 1099-NEC, the new $2,000 threshold, why a W-9 comes first, what goes on a 1099-K instead, and the deadlines, penalties and state copies.Guide · 7 min
- W-9s and backup withholding: a vendor onboarding guideWhen to ask for a W-9, how IRS TIN matching works, and what happens when a vendor won’t give you one: 24% backup withholding, owed by you.Guide · 6 min
- W-2 year end for startups: boxes, deadlines, correctionsThe W-2 boxes founders get wrong (box 1 vs 3 vs 5, box 12 codes), the W-3, the SSA deadline, state copies, and how to fix a mistake with a W-2c.Guide · 7 min
- Startup tax deadlines by month for a C-corpFederal tax deadlines for a calendar-year C-corp, month by month: W-2s, 1099s, Form 941, Form 1120, estimated taxes and Delaware franchise tax.Guide · 5 min
- Form 1120: what to give your tax preparer, and whenWhat a startup hands its tax preparer for Form 1120: closed books, a balance sheet that ties to Schedule L, book-to-tax items, ownership and 1099s.Guide · 5 min
- How to pay vendors: ACH vs wire vs check vs cardACH, wire, check or card: what each payment rail costs, how long it takes, where the fraud risk sits, and how each payment is recorded in the books.Guide · 6 min
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.