If you have hired contractors or freelancers this year, there is a good chance you will need to send them a 1099-NEC form at tax time. If you have never done it before, the process can feel a little overwhelming.
What is the difference between a 1099-NEC and a 1099-MISC? Who needs one? When are they due? What happens if you make a mistake?
Do not worry. I will walk you through it step by step. By the end, you will know what to do, when to do it, and how to avoid the most common problems.
What Is a 1099-NEC?
A 1099-NEC (Nonemployee Compensation) is a tax form you send to independent contractors, freelancers, or other service providers you paid during the year. It reports how much you paid them so they can report that income on their tax return. The IRS receives a copy as well.
Think of it like a W-2, but for contractors instead of employees.
Who Needs to Get a 1099-NEC?
You must send a 1099-NEC to anyone you paid $600 or more during the year for services, as long as all of the following are true:
- They are not an employee (no W-2).
- They are an individual, partnership, or LLC (not a corporation; exceptions apply, such as some legal fees).
- You paid them for business services (not personal expenses).
- You did not pay them by credit card or a third-party processor (those are reported separately on Form 1099-K).
Businesses that make payments meeting these criteria are responsible for issuing 1099-NEC forms. Accurate and timely reporting helps you avoid penalties.
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Who Does Not Need One?
You do not need to send a 1099-NEC to:
- Corporations (C corps or S corps): They are generally exempt, with limited exceptions such as certain legal payments.
- Payments made by credit card or third-party processors: PayPal, Venmo, Stripe, and card networks report these via Form 1099-K.
- Personal expenses: Payments not related to your business (for example, painting your home).
- Employees: Employees receive a W-2, not a 1099.
Best practice is to collect a Form W-9 from each contractor during onboarding. It provides their business structure and tax ID and helps you determine whether a 1099-NEC is required. This is also a good time to request any needed insurance certificates.
How to Get the Information
Good procedures during the year make year end simple. Here is what to do:
Request W-9 forms: Obtain W-9s before you pay contractors. They include names, addresses, and taxpayer identification numbers (TINs) and indicate business structure. This is also the best time to ask for insurance certificates if needed. Collecting these before payment prevents year-end scrambling.
Track payments: Keep clear records throughout the year. Accounting software like QuickBooks Online or Xero can track this if entries are made correctly.
Review contracts: Confirm that all qualifying payments are included.
Filling Out the 1099-NEC Form
Once you have the information, complete the form accurately:
Obtain the form: Use official 1099-NEC forms. Many accounting platforms can generate and e-file them, but you can always get forms from the IRS.
Verify details: Double-check the recipient’s name, address, TIN, and the total amount paid. Most of this is on the W-9.
File on time: Send 1099-NEC forms to recipients and the IRS by January 31 (for both paper and electronic filing).
Why This Matters
Compliance: Noncompliance can lead to IRS penalties. Pay attention to deadlines.
Smoother tax season: Accurate forms help contractors file correctly and reduce follow-up for everyone.
Stay organized year round and use tools such as QuickBooks or Xero to streamline record keeping. Clear onboarding procedures save time and money. It is not just about checking boxes for the IRS; it is also about maintaining strong relationships with your contractors and making tax time easier for all parties.