The reporting threshold changed for 2026 and most guidance still says $600. It is $2,000 for payments in tax years beginning after 2025, so the forms you issue in January 2027 for the 2026 year follow a different rule from the ones you issued a year earlier. Everything else is unchanged, and the parts that go wrong are the same parts: the W-9 you did not collect, the payment platform that already reported the money, and the corporation you sent a form to anyway.
Which 1099 to Issue
Form 1099-NEC (Nonemployee Compensation): for payments of $2,000 or more to independent contractors, freelancers, attorneys, and other service providers who are NOT employees. This is the form for most contractor payments.
Form 1099-MISC (Miscellaneous Information): for payments of $2,000 or more for rents, prizes, awards, other income, and certain medical and healthcare payments. Royalties keep their own much lower $10 threshold, and gross proceeds paid to an attorney stay reportable at $600. Fishing boat proceeds are reportable at any amount.
Until 2020, Form 1099-MISC was used for both contractor compensation and miscellaneous payments. Starting 2020, the IRS split contractor payments out to Form 1099-NEC. As of 2026, the split remains in place.
Other 1099 series: 1099-DIV (dividends), 1099-INT (interest), 1099-R (retirement distributions), 1099-K (third-party network payments, Stripe, PayPal, etc., for sellers above threshold). These have separate rules and are not covered in this article.
The Reporting Threshold and When It Applies
At a Glance
| Item | Value |
|---|---|
| Form 1099-NEC | Nonemployee compensation to contractors, $2,000 or more |
| Form 1099-MISC | Rents, prizes, other income at $2,000 or more; royalties at $10; attorney gross proceeds at $600 |
| Recipient deadline | January 31 |
| IRS filing deadline (paper) | January 31 (1099-NEC); February 28 (1099-MISC) |
| Penalty for non-filing | $60 to $340 per form depending on timing, $690 for intentional disregard |
For tax years beginning after 2025 the minimum reporting amount rose from $600 to $2,000, and the same figure governs when backup withholding applies to those payments. The forms issued in January 2026 for the 2025 year used $600; the forms issued in January 2027 for the 2026 year use $2,000. Two adjacent seasons, two tests, which is why a payables report built on last year's rule over-reports.
The threshold is per RECIPIENT per YEAR per PAYMENT TYPE. Multiple smaller payments to the same contractor that add up to $2,000 or more trigger the filing requirement; a single $1,900 engagement does not.
Payments under the threshold do not require a 1099, and you may still issue one voluntarily. Some businesses do, for record-keeping or because the payee asked. The recipient owes tax on the income either way; the form reports it, it does not create it.
Payment method matters: payments made via credit card, debit card, or third-party network (Stripe, PayPal, Square, Venmo for business) are NOT reported on 1099-NEC or 1099-MISC. They are captured on Form 1099-K (filed by the payment processor, not by you). This is a common error, issuing a 1099-NEC for a payment also covered by a 1099-K duplicates the income to the recipient.
Payments to most CORPORATIONS are exempt from 1099 reporting (with several exceptions: legal services, medical/healthcare, fish purchases, attorney settlements). Payments to LLCs depend on the LLC's tax classification, disregarded SMLLCs and partnership LLCs are 1099-reportable; LLCs that elected S-corp or C-corp treatment are not.
Compliance monitoring
If you would rather not do this yourself, we track every deadline for your entity and file on time, in every state where you are registered. Or keep reading and file it on your own. This guide covers everything you need either way.
W-9 Collection: The Critical First Step
Before paying any contractor, collect a completed Form W-9. Do it at onboarding rather than at the threshold, because you rarely know in January which engagements will reach $2,000 by December. The W-9 captures the contractor's legal name, business name if different, federal tax classification, TIN (SSN, EIN or ITIN), and address.
Best practice: collect W-9 BEFORE the first payment. Once you've paid a contractor and need to issue a 1099, getting a W-9 retroactively is much harder, and if you don't have one, you may be required to backup-withhold 24% on future payments.
Backup withholding: if a contractor refuses to provide a W-9 (or provides one with an incorrect TIN), the payor must withhold 24% of all future payments and remit to the IRS via Form 945 (Annual Return of Withheld Federal Income Tax).
W-9 vs W-8 BEN: US persons complete W-9. Non-US persons complete W-8 BEN, and foreign entities complete W-8 BEN-E. Do not accept a W-9 from someone who should be on a W-8; the certification is made under penalties of perjury and a payer who knows or has reason to know the payee is foreign takes on the withholding liability itself. Which form belongs to which payee is set out in W-9 versus W-8 BEN.
The W-9 also settles whether you file at all. Payments to most corporations are exempt, and the form is where the payee says so. An LLC is the awkward case, because the exemption follows federal tax classification rather than the letters after the name: a disregarded single-member LLC and an LLC taxed as a partnership are reportable, while an LLC that elected S corporation or C corporation treatment is not. Line 3a carries that answer. Background is in what is an LLC and LLC taxes.
Filing Deadlines
1099-NEC deadlines: recipient copy due by January 31. IRS filing due by January 31 (paper OR electronic). The 1099-NEC has the same deadline for both recipient and IRS, which is one month earlier than the old 1099-MISC IRS deadline.
1099-MISC deadlines: recipient copy due by January 31. IRS filing due by February 28 (paper) or March 31 (electronic).
The January 31 recipient deadline is firm. Late issuance to recipients triggers penalties.
Form 1096 (transmittal form): required only for paper IRS filings. Submitted with the paper 1099 copies. Not required for electronic filing.
Electronic Filing Requirements
For the 2026 tax year, taxpayers filing 10 or more information returns total must file electronically. The 10-or-more threshold is aggregated across all return types (1099-NEC, 1099-MISC, 1099-DIV, 1099-INT, W-2, etc.), not per type.
Electronic filing options: (1) the IRS FIRE (Filing Information Returns Electronically) system; (2) a third-party 1099 service (Gusto, Track1099, Tax1099, etc.); (3) a CPA or accountant with electronic filing capability.
Many businesses use payroll processors that handle 1099 issuance as part of the service, which is usually the easiest route for anyone already running payroll. The two calendars sit next to each other: the same last week of January carries the 1099s, the W-2s, the fourth quarter Form 941 and Form 940.
Whether a worker belongs on a 1099 at all is the more expensive question to get wrong. A misclassified employee produces unpaid payroll tax, deposit penalties and a reclassification reaching back years. The factors the IRS weighs are in independent contractor versus employee; the entity-level consequences follow the classification in which federal return your entity files.
Penalty for not filing electronically when required: the same as the failure to file penalty, $60 to $340 per form depending on how late the correction lands. A paper filing when e-filing was mandatory counts as a failure to file in the prescribed manner, not as a filing with a formatting problem.
Three Reporting Years in Practice
The three below are composites of businesses that issue these forms. The federal thresholds and penalties are the real ones for the 2026 tax year; the business facts are illustrative.
Example 1: Meridian Copy Studio and the threshold change
A Denver content agency uses fourteen freelance writers and two editors across the year. Under the old $600 test, eleven of the sixteen crossed the line. Under the $2,000 test that applies to 2026 payments, six do: the other five each took two or three assignments totalling between $900 and $1,750. The agency still collects a W-9 from all sixteen, because it cannot know in March who will still be working in November, and because the W-9 is what reveals that two are S corporations and exempt anyway. Five fewer forms, five fewer chances at a $60 penalty, and no change to what the writers owe.
Example 2: Northmoor Property Group and the boxes people miss
A Portland landlord with nine units pays a property manager $31,000 in management fees, $4,800 in gross proceeds to a law firm handling an eviction, and $2,600 to a plumber operating as a sole proprietor. That is three forms and two of them are not obvious. The management fees are nonemployee compensation on 1099-NEC. The plumber is 1099-NEC. The law firm gets a 1099-MISC for gross proceeds even though it is incorporated, because the corporate exemption does not reach attorney payments, and it stays reportable at $600 rather than $2,000. Owners who file only for the plumber have missed the two entries an examiner will find first.
Example 3: Blue Ridge Trail Outfitters and the duplicate
An Asheville retailer paid a brand designer $9,400 across the year, all by card. It issued a 1099-NEC for the full amount; the processor had already reported the same money on a 1099-K. The designer's return showed $18,800 of income against $9,400 received, the matching system flagged it, and the designer spent two months proving a negative. Card, debit and third-party network payments belong on 1099-K, filed by the processor. The fix is a payables report that separates payment rails before the 1099 batch runs, which is a bookkeeping setting rather than a January decision.
Common 1099 Mistakes
Six failures produce most of the notices that follow a January filing run. Each is cheap in October and expensive in February.
Mistake 1: Collecting the W-9 in January instead of at onboarding
What happens. The payer waits until totals are known, then chases W-9s from people it has already paid in full. Why it fails. A contractor already paid has no incentive to respond, and some have moved or stopped trading. Consequence. A form with a missing or wrong TIN, which costs the same $60 to $340 as not filing, or 24% backup withholding you should have started months earlier and cannot now recover. Prevention. Make the W-9 part of vendor setup. No W-9, no first payment.
Mistake 2: Issuing a 1099-NEC for money a platform already reported
What happens. A contractor paid by card or through a payment platform receives both a 1099-K from the processor and a 1099-NEC from the payer. Why it fails. Payments settled by card, debit or third-party network are reportable by the settlement entity, not by the business that bought the service. Consequence. The recipient's income is doubled in the IRS matching system and they carry the burden of unwinding it. Prevention. Split the payables ledger by payment rail before the 1099 batch runs, and report only the cheque, ACH and cash column.
Mistake 3: Sending forms to corporations that are exempt
What happens. Every vendor over the threshold gets a form regardless of what the W-9 said. Why it fails. Payments to most corporations are outside the reporting rules, and an LLC that elected corporate treatment counts as one. Consequence. Wasted work, confused vendors, and a filing record that buries the genuinely reportable payments. Prevention. Drive the decision off line 3a of the W-9, not the vendor's trading name.
Mistake 4: Applying the corporate exemption to a law firm
What happens. An incorporated law firm is treated as exempt and no form is issued. Why it fails. Attorney payments are carved out of the corporate exemption. Legal fees for services go on 1099-NEC; gross proceeds paid to an attorney, typically in a settlement, go in box 10 of 1099-MISC and remain reportable at $600. Consequence. A missed form in the category examiners check first, because settlement money is easy to trace from the other side. Prevention. Flag every payee whose W-9 shows a legal services classification and handle it outside the normal exemption logic.
Mistake 5: Treating January 31 as a soft date
What happens. The recipient copies go out in early February and the IRS file follows later. Why it fails. January 31 is both the recipient deadline and, for 1099-NEC, the IRS deadline. There is no automatic extension for the 1099-NEC recipient statement. Consequence. Two separate penalties on the same payment, one under the information return rules and one under the payee statement rules, each running $60 to $340 per form. Prevention. Close the payables year in the first week of January and reserve the last week for corrections, not for the first draft.
Mistake 6: Putting a foreign contractor on a W-9 and a 1099
What happens. A contractor abroad is onboarded with the same paperwork as a US one. Why it fails. A non-US person cannot certify US status. The correct document is a W-8 BEN or W-8 BEN-E, and the reporting form, if any, is 1042-S rather than 1099. Consequence. A false certification on file, plus exposure to 30% withholding the payer did not apply and may have to fund itself. Prevention. Ask the status question at onboarding and route foreign payees down the W-8 path. Foreign founders and their US entities meet the same question from the other side in forming a US LLC without an SSN.
Penalties for Non-Filing or Late Filing
The figures below are the inflation-adjusted amounts for information returns required to be filed in 2027, which is the filing season for 2026 payments. They rise most years, so read them off the current revenue procedure rather than off memory.
Corrected within 30 days: $60 per form, with an annual cap of $698,500, or $244,500 for a business with average annual gross receipts of $5,000,000 or less.
Corrected after 30 days but by August 1: $130 per form, capped at $2,095,500, or $698,500 for a small business.
Filed after August 1 or not filed at all: $340 per form, capped at $4,191,500, or $1,397,000 for a small business.
Intentional disregard: a minimum of $690 per form, with no cap of any kind.
Then double it. Section 6721 covers the return you file with the IRS and section 6722 covers the statement you furnish to the payee, and they are separate penalties on the same tiers. A contractor who never received a copy and whose form never reached the IRS generates two charges, not one. Incorrect information sits on the same scale: a wrong TIN, a missing TIN or a wrong recipient name costs what not filing costs.
Worked through: a business that fails to file and fails to furnish forty 1099-NECs, and does not fix it before August 1, is looking at $340 times forty on each side, $27,200 in total. The same forty forms corrected inside thirty days would cost $4,800. The distance between those two numbers is a fortnight of attention in January.
How File.Business Handles 1099 Reporting
File.Business partners with payroll processors (Gusto, Rippling, ADP) to handle 1099-NEC and 1099-MISC issuance for our compliance clients. The processor collects W-9s from contractors, tracks payment totals throughout the year, generates 1099s in January, and files electronically with the IRS.
For clients without a payroll processor: standalone 1099 service at $19 per form filed, including W-9 collection assistance and electronic IRS filing. Bulk discounts for 10+ forms.
For backup withholding situations where a contractor refused a W-9: we coordinate the 24% withholding, the EFTPS deposits, and the annual Form 945 filing. Entities that need an EIN before any of this can start should read the EIN application guide first, and owners deciding how to take money out of their own business should read how to pay yourself from your LLC, because owner draws are not contractor payments and never belong on a 1099.
Frequently Asked Questions
What is the difference between 1099-NEC and 1099-MISC?
1099-NEC reports non-employee compensation (payments to contractors, freelancers, attorneys for services). 1099-MISC reports rents, royalties, prizes, other income, and attorney settlement payments. Since 2020 the split has been: contractor pay = NEC; everything else = MISC.
What is the reporting threshold for issuing a 1099?
For tax years beginning after 2025 it is $2,000 of total payments to a single recipient during the year, up from $600. Royalties remain reportable at $10 and gross proceeds paid to an attorney remain reportable at $600.
Do I need to issue a 1099 for payments made by credit card?
No. Credit card, debit card, and third-party payment network (Stripe, PayPal, Square) payments are reported on Form 1099-K by the payment processor, NOT on 1099-NEC by you. Issuing a duplicate 1099-NEC creates IRS notices for the recipient.
Do I issue a 1099 to a corporation?
Generally no, with exceptions: legal services (always 1099-MISC even to incorporated firms), medical/healthcare payments, fish purchases, and attorney settlement payments. The W-9 captures whether the recipient is incorporated.
When is Form 1099-NEC due?
Recipient copy: January 31. IRS filing: January 31 (paper or electronic). Same deadline for both.
What is the penalty for not issuing a required 1099?
For returns required to be filed in 2027: $60 per form corrected within 30 days, $130 if corrected by August 1, $340 if filed after August 1 or not at all, and a minimum of $690 per form for intentional disregard. The payee statement carries a separate penalty on the same scale.
Can File.Business handle my 1099 issuance?
Yes. We partner with Gusto, Rippling, and ADP for integrated 1099 service, or offer standalone 1099 filing at $19 per form including W-9 collection assistance and electronic IRS filing.
File.Business handles federal compliance for you
From EIN to Form 5472, federal filings stack up fast. File.Business pairs your entity with the right federal filings on a single calendar, with deadline tracking, automatic preparation, and CPA partnership for income tax returns.
This guide is written from the official sources below. Fees, forms, and deadlines change; confirm the current requirement with the agency before you file.
Disclosure. File.Business is a private filing service, not a government agency and not a law firm. We prepare and submit filings at your direction, and nothing on this page is legal or tax advice. Filing fees, deadlines, and statutory references are current as of the last-updated date shown above and can change. Confirm current requirements with the relevant state agency before you file.
