Every year, businesses must issue the 1099-NEC tax form to nonemployees to whom they’ve paid $2,000 or more during the tax year. This seemingly simple process can pose significant challenges, particularly as Internal Revenue Service (IRS) penalties for noncompliance can be substantial. According to the IRS, the agency assessed $2.9 billion in civil penalties against business income tax filers in a single year, a stark reminder of the financial risks tied to filing taxes incorrectly.

Understanding the 1099-NEC form can give businesses a solid foundation for meeting their tax obligations confidently and correctly. Beyond the basic requirement, there are many details and exceptions that can impact how and when this form is used. We’ll cover the nuances of the 1099-NEC form, along with in-depth insights to help businesses effectively meet their tax responsibilities.

What’s in this article?

• What is the 1099-NEC tax form?
  
• Who must file Form 1099-NEC?
  
• Who receives Form 1099-NEC?
  
• When is Form 1099-NEC due?
  
• What information appears on Form 1099-NEC?
  
• What is backup withholding?
  
• How to file Form 1099-NEC
  
• What happens if you file late or incorrectly?
  
• How Stripe Tax can help
  

What is the 1099-NEC tax form?

The 1099-NEC is a form that reports payments made to service providers who are not employees. The IRS reintroduced this form in 2020 to separate contractor pay from other types of miscellaneous income.

Nonemployee compensation generally includes any payment for services performed by someone who is not your employee. This covers professional fees for attorneys and accountants, commissions for nonemployee salespeople, and payments to freelancers for projects.

It only applies to payments made in the course of your trade or business. You do not need to file a 1099-NEC for personal payments, such as hiring a contractor to renovate your private home.

Who must file Form 1099-NEC?

Your business must file Form 1099-NEC if you meet the following four conditions:

• You made a payment to someone who is not your employee.
  
• You made the payment for services in the course of your trade or business.
  
• You made the payment to an individual, partnership, estate, or, in some cases, a corporation (specifically law firms).
  
• You paid the recipient at least $2,000 during the year.
  

While the threshold was $600, recent legislative updates increased this amount to $2,000 for payments made in 2026 and beyond. Additionally, if you withheld any federal income tax from a contractor’s pay under backup withholding rules, you must file a 1099-NEC regardless of whether the total payment reached the limit.

Who receives Form 1099-NEC?

If you’re a nonemployee (such as an independent contractor, freelancer, or consultant) and you’ve received $2,000 or more from a business in a year, you should receive a 1099-NEC form from that business. If you receive this form, it means a client has reported your earnings to the IRS as self-employment income.

Receiving a 1099-NEC indicates that you are responsible for paying your own income and self-employment taxes, as the payer generally does not withhold these from your pay. You must report this income on your tax return even if you do not receive the form by the deadline.

When is Form 1099-NEC due?

The deadline to file Form 1099-NEC with the IRS and provide a copy to the recipient is January 31. If January 31 falls on a weekend or holiday, the deadline moves to the next business day.

Unlike other 1099 forms, there is no automatic 30-day extension for Form 1099-NEC. You must meet this deadline to avoid late-filing penalties.

What information appears on Form 1099-NEC?

The 1099-NEC form requires several pieces of information from both the payer (usually a business) and the recipient (the nonemployee or independent contractor). Here are the key pieces of information that are required:

What doesn't go on a 1099-NEC?

The following types of payments do not go on a 1099-NEC:

• Employee wages

• Payments for goods, such as inventory or supplies

• Payments for rent or utilities

• Travel reimbursements

• Payments for personal expenses

What is backup withholding?

In most cases, you do not withhold taxes from contractor payments. However, backup withholding is required if the contractor fails to provide a valid taxpayer identification number (TIN) or if the IRS notifies you that the TIN they provided is incorrect.

When backup withholding applies, you must deduct a flat 24% from the payment and remit it to the IRS. You report this withheld amount in Box 4 of the 1099-NEC. To avoid the complexities of backup withholding, always secure a completed W-9 from contractors before issuing their first payment.

How to file Form 1099-NEC

You can file Form 1099-NEC either by mail or electronically.

• E-filing: The IRS strongly encourages electronic filing through the Information Returns Intake System (IRIS) or the FIRE system. As of 2024, if you file 10 or more information returns (including 1099s and W-2s combined), you must file electronically.

• Paper Filing: If you file fewer than 10 forms and choose to mail them, you must include Form 1096, which acts as a summary transmittal sheet. You cannot use a photocopied version of Form 1099-NEC for paper filing because the IRS uses special scanners to read the red-ink originals.

• The Copies:

  • Copy A: Sent to the IRS
    
  • Copy B: Sent to the recipient
    
  • Copy 1: Sent to the recipient’s state tax department
    
  • Copy 2: Given to the recipient to file with their state income tax return
    

What happens if you file late or incorrectly?

The IRS imposes penalties for failing to file by the deadline or providing incorrect information. For the 2026 tax year, these penalties per form are:

• $60 if you file within 30 days of the deadline
  
• $130 if you file more than 30 days late but by August 1
  
• $340 if you file after August 1 or do not file at all
  
• $680 (minimum) if the IRS determines “intentional disregard” of the filing requirements
  

These penalties apply for each instance in which a business fails to file a 1099-NEC correctly, so a business that fails to provide multiple 1099-NEC forms could face substantial penalties. Furthermore, in addition to federal penalties, some states may also impose penalties for failure to file correct 1099-NEC forms.

How to correct Form 1099-NEC

Correcting information on a Form 1099-NEC that you’ve already filed with the IRS involves submitting a corrected form. Here’s how to do that:

• Obtain official forms: Secure an official, scannable Form 1099-NEC from the IRS. Do not use a downloaded or printed PDF for paper filing, as the IRS requires the red-ink originals.

• Mark the correction: Place an “X” in the “CORRECTED” checkbox located at the very top of the form.

• Enter identifying information: Provide the payer and recipient names, addresses, and taxpayer identification numbers (TINs) exactly as they appeared on the original, incorrect form.

• Input correct values: Enter the accurate compensation amounts or withholding figures in the corresponding boxes.

• Provide the recipient's copy: Mail Copy B of the corrected form to the contractor immediately so they can update their own records.

• Prepare a new Form 1096: If you are filing by mail, complete a new Form 1096 to act as a transmittal summary for your correction.

• Verify Form 1096 totals: Ensure the totals on Form 1096 only reflect the specific corrected forms you are currently submitting, not your original filing totals.

• File with the IRS: Submit Copy A and your new Form 1096 to the IRS.

• Match your filing method: If you originally filed your returns electronically, you must also file the correction electronically.

• Update state records: Check if your state participates in the Combined Federal/State Filing (CFSF) program; if not, you may need to file a separate correction with the state tax agency.

1099-NEC vs. 1099-MISC

While they look similar, these forms report different types of payments:

• Form 1099-NEC is strictly for services performed by nonemployees (independent contractors).

• Form 1099-MISC is for other types of “miscellaneous” payments, such as rent, prizes, awards, or medical and healthcare payments.

If you pay a contractor for their work, use the 1099-NEC. If you pay a landlord for office rent, use the 1099-MISC.

How Stripe Tax can help

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• Digital goods and services in all US states and over 100 countries
  
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Stripe Tax can help you:

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