Paying Contractors and Filing Form 1099-NEC

When you pay an independent contractor, you generally do not withhold tax or run payroll, but you do have paperwork. You collect a Form W-9 at the start, keep records during the year, and report the total on Form 1099-NEC after year-end. The reporting threshold increased for payments made in 2026, so this year's process differs from last year's.

When Form 1099-NEC is required

Form 1099-NEC reports nonemployee compensation: fees, commissions and other payments for services performed by someone who is not your employee, made in the course of your trade or business. Examples include consultants, freelancers, contract workers and attorneys. Payments to attorneys for legal services are reportable even if the attorney practices as a corporation.

Generally you do not report:

• Payments to a corporation, with exceptions such as legal services and medical or health care services.
• Wages paid to employees, which go on Form W-2. See W-2 and W-3 filing.
• Payments for merchandise, telephone, freight and similar items.
• Payments you made by credit card or through a third-party payment network. Those are typically reported by the payment processor on Form 1099-K. See our guide to Forms 1099-NEC and 1099-K.

Example. In 2026 a business pays one designer $1,900 and a consultant $2,400, both by bank transfer for services. The consultant's payments reach the $2,000 threshold and require Form 1099-NEC. The designer is under the threshold, so no form is required, though the business should still keep records and a W-9.

The $2,000 threshold

For payments made after 2025, the reporting threshold for most Form 1099-NEC and Form 1099-MISC payments rose from $600 to $2,000. The IRS instructions say it may be adjusted for inflation beginning in 2027. Some categories keep other thresholds: for instance, gross proceeds paid to an attorney are $600, and royalties are $10. Withholding rules also changed. The Publication 15 list of 2026 changes shows the backup withholding reportable payment threshold rising from $600 to $2,000, with the backup withholding rate staying at 24%.

Due dates and e-filing

January 31 is the statutory deadline. Because January 31, 2027 is a Sunday, the next business day applies. Form 1099-NEC does not have the later March date that applies to some other 1099 forms.

The e-file threshold is 10 returns, and the count includes all information returns combined: Forms W-2, 1099 of every kind, 1098 and similar forms. If you file nine Forms 1099-NEC and one Form W-2, you must e-file all of them. The IRS offers a free online portal called IRIS and a system for larger filers.

Form W-9 and backup withholding

Ask each contractor for a Form W-9 before the first payment, and keep it for your records. It gives you the contractor's name, tax classification and TIN. If a contractor will not provide a TIN, you may need to withhold at the backup withholding rate (24% for 2026) and report the withholding. The IRS has a TIN matching system for payers who want to check names and numbers before filing.

What's new on the form

Starting with the 2026 forms, a payer reports qualified tips in box 1b and qualified overtime in box 1d of Form 1099-NEC when the recipient has those amounts. In practice, overtime shows up on a 1099 only in the rare case where a worker is an employee under wage and hour law but treated as a contractor for tax purposes. See tips and overtime reporting.

Boxes 5 through 7 on Form 1099-NEC are state boxes that the IRS says are for convenience and do not need to be completed for the IRS.

Corrections

If you filed a Form 1099-NEC on paper and find an error, file a corrected form. The IRS instructions warn against checking the VOID box when correcting on paper because scanning equipment will skip the form and the correction will not be recorded. If you filed electronically, correct it electronically.

State reporting for contractors

Some states require 1099 filings or 1099 information with state agencies, and some states ask you to report independent contractors as new hires. Illinois requires independent contractors to be reported to the state new hire directory within 20 days of contract start. See new hire reporting.

Common mistakes

• Not collecting a W-9 until January.
• Treating someone as a contractor when the relationship looks like employment. See employee vs. independent contractor.
• Reporting reimbursed expenses as pay without a written arrangement.
• Missing contractors paid by check across several months.
• Filing on paper after crossing the 10-return e-file threshold.

How we can help

We collect and track W-9s, prepare and e-file Forms 1099-NEC, reconcile them to your books and handle state filings. See our bookkeeping and payroll services. Late or incorrect returns can bring information return penalties.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.