Form 1099-NEC: which contractors get one, and how to file it on time

01Who gets one#

A business files a 1099-NEC for a payee when all five of these are true. The IRS’s instructions are the authority; the list below is the common case for a startup:

Typical startup payees who get one: a freelance designer, a contract engineer paid by ACH, a sole-proprietor bookkeeper, an independent sales rep paid commission, a law firm of any form, an advisor paid cash fees. Typical payees who don’t: AWS, Google Workspace and other corporations, landlords (that’s a 1099-MISC for rent of $2,000 or more, unless the landlord is a corporation), and anyone you paid by card.

• You paid them in the course of your trade or business. Personal payments don’t count.
• They are not your employee. Employees get a W-2, never a 1099 for the same work, and which one a person is turns on worker classification, not on what the contract calls them.
• The payment was for services, including parts and materials supplied with the service. Rent, prizes and royalties go on Form 1099-MISC instead.
• The payee is an individual, a partnership, or an LLC taxed as either. Corporations are generally exempt, except for legal fees.
• You paid them $2,000 or more in the calendar year, counting only payments made by check, ACH, wire or cash.

02The $2,000 threshold, and what it doesn’t change#

The One Big Beautiful Bill Act, signed in July 2025, raised the 1099-NEC and 1099-MISC reporting threshold from $600 to $2,000 for payments made after December 31, 2025. The IRS’s current instructions say it may be adjusted for inflation beginning in 2027. So the forms you file in early 2027, for payments made during 2026, use $2,000. Forms filed in early 2026, for 2025 payments, still used $600.

Three things don’t change. The contractor still owes tax on every dollar, reported or not. You still deduct the expense, and an auditor or an investor’s diligence team will still ask who it went to. And a payee you backup-withheld from is reported regardless of the amount, because the withholding has to be credited to someone. The threshold decides who gets a form; it doesn’t decide whose W-9 you need, which is everyone you might pay.

03Card and PayPal payments go on a 1099-K, not the NEC#

Payments made with a credit card, a debit card or through a third-party payment network are not reported on Form 1099-NEC or 1099-MISC. The card processor or the network reports them to the contractor on Form 1099-K under its own rules. If you report them as well, the contractor’s income is counted twice.

This is a bookkeeping problem before it’s a tax one. If the ledger records every contractor payment as one line from one account, nobody can tell the card payments from the ACH ones in January. The fix is to know the payment method on every bill: in QuickBooks Online or Xero, payments from a bank account and payments from a credit card account are already separated, so the 1099 report can include one and exclude the other. Payments through payroll platforms that pay contractors on your behalf (Gusto, Deel and similar) are a third case: read the platform’s terms, because some file the 1099s for you and some only prepare them.

04Deadlines#

Form 1099-NEC is due to the recipient and to the IRS on the same day: January 31 of the year after the payments. When January 31 falls on a weekend or a federal holiday, the deadline moves to the next business day. For 2026 payments, January 31, 2027 is a Sunday, so the forms are due Monday, February 1, 2027.

There is no automatic extension for the 1099-NEC. Form 8809 can request 30 extra days to file with the IRS, but for this form it is granted only in narrow circumstances such as a disaster or the death of the person responsible, and a separate request is needed to delay the recipient copy. Plan as if the deadline is fixed. Form 1099-MISC runs on a later clock: recipient copies by January 31 and the IRS copy by the end of February on paper or March 31 electronically.

05Filing electronically: IRIS#

If you file 10 or more information returns in a calendar year, counting all types together (1099-NEC, 1099-MISC, W-2 and others), you must file them electronically. That rule has applied to returns filed since January 1, 2024. A startup with six contractors and five employees is over it.

The IRS’s free portal is IRIS, the Information Returns Intake System. Its older bulk system, FIRE, is being retired after November 2026, so from January 2027 IRIS is the IRS’s own route for 1099 e-filing. Filing through IRIS yourself needs a Transmitter Control Code, which the IRS says can take up to 45 days to issue: if you plan to file directly, apply in October or November, not January. Most startups don’t file directly; QuickBooks Online, Xero add-ons, payroll providers and dedicated 1099 services file for you, and the transition is theirs to handle.

06Penalties#

Penalties are per form, and they apply separately to the copy you owe the IRS and the copy you owe the recipient, so one missed 1099-NEC can be two penalties. For returns due in 2026, the IRS’s published amounts were $60 per form if corrected within 30 days, $130 if filed after 30 days but by August 1, $340 after August 1 or never, and $680 with no annual cap for intentional disregard. The amounts are indexed each year, so forms due in 2027 carry slightly higher figures. Annual maximums are lower for businesses with gross receipts of $5 million or less.

The more expensive mistake is the missing TIN. If you can’t get a correct taxpayer identification number from a contractor and paid them anyway, you were required to backup-withhold, and if you didn’t, the tax you should have withheld can become yours.

07State copies#

Most states with an income tax also want a copy of each 1099-NEC for payees in, or work performed in, the state, often by the same January 31 date. Some take it automatically through the IRS’s Combined Federal/State Filing Program, which forwards electronically filed 1099s to participating states. Others require a direct filing, and some of those also require a reconciliation return. Which states participate changes year to year and the IRS lists them in Publication 1220, so check each state you paid contractors in rather than assuming the federal filing covered it.

08What to do this month#

January is the wrong month to start. In October or November, with the year mostly done:

• Pull the year-to-date vendor list from the ledger and mark every payee who is a contractor rather than a supplier.
• Check you hold a signed W-9 for each one. Request any that are missing now, while the contractor still wants to be paid by you.
• Mark each payment’s method. Card and payment-network payments come out of the 1099 total.
• Flag anyone over, or likely to cross, $2,000 by December 31, and confirm their legal name and TIN match what the IRS has.
• Decide who files: your accounting software, your payroll provider or a 1099 service. If it’s you, apply for an IRIS Transmitter Control Code.