What is Form 1099-NEC?
Form 1099-NEC is used to report non-employee compensation, the payment given to contractors, freelancers, and gig workers for their services. It is filed only if the 1099 NEC threshold of $600+ is reached.
Key boxes that need to be covered in 1099-NEC are:
- Box 1: Service payments covered by the 1099 NEC $600 rule
- Box 4: Backup withholding 24 percent
- Box 2: Check box for the direct-sales $5,000 rule
When to file 1099-NECs: You must e-file 1099-NEC and send a copy to the contractor by January 31.
Significance of 1099-NEC Threshold
The 1099-NEC $600 rule helps prevent every small payment from overwhelming IRS systems and reduces paperwork for businesses. However, missing or filing late can be costly, with penalties climbing as high as $330 per form or $660 per form for intentional disregard.
Current 1099-NEC $600 Rule
1099-NEC Threshold:
A 1099-NEC must be filed when the total cash and non-cash payments given to a contractor or freelancer exceed $600 in a calendar year. This applies only to business payments. Personal payments don’t count.
Services Covered Under 1099-NEC Reporting:
1099-NEC reporting covers professional services, including design, marketing, cleaning, commissions, and the supply of parts or materials, as well as labor provided by a nonemployee.
Exceptions to 1099-NEC reporting:
Some payees, like most corporations, are exempt, but attorney fees and certain federal payments still require reporting.
Common mistakes:
Some common mistakes include missing multiple invoices or forgetting to include reimbursed expenses that are part of the overall fee.
Coming Up: 1099 NEC $2,000 Threshold 2026
Under the One Big Beautiful Bill Act (signed on July 4, 2025), the federal 1099-NEC threshold has been increased from $600 to to $2,000 for payments made in 2026, with future adjustments for inflation.
This rule will take effect for payments made after December 31, 2025. For payments made in 2025, payers are still subject to the 1099-NEC $600 rule.
Situations Where the 1099-NEC Threshold Doesn’t Matter
There are a few situations where the 1099-NEC threshold does not apply.
- 24% Backup withholding: If the payee’s TIN is missing or incorrect, a 1099-NEC must be filed, regardless of the amount.
- Direct-sales $5,000 rule: Report direct sales of $5,000+ of consumer products for resale.2..
- Attorney-fee exception: Report any payments for legal services to corporations.
Compliance To-Do List for 1099-NEC Forms
Given below are a set of quick checklists to go through for smooth filing of 1099-NEC forms:
- Gather a completed W-9 from the recipient.
- Verify the TIN using Tax1099’s real-time TIN match before paying the contractor.
- Monitor year-to-date payments for each payee to catch thresholds earlier.
- Identify any contractors subject to the 24% backup withholding.
- Send copies to recipients and e-file 1099-NEC by January 31.
- Retain records, digital or paper, for at least three to four years.
- File Form 8809 for a 30-day IRS filing extension.
Practical Examples
| Payment Scenario | Is 1099-NEC Filing Needed? | Why is it needed? | Box to Use |
|---|---|---|---|
| Designer billed three times $250 each (total $750 in 2025) | Yes | Total payments exceed $600 for the year | Box 1 |
| Single payment of $550 with 24% backup withholding | Yes | Any payment with backup withholding is to be reported | Box 1 and Box 4 |
| Sold starter-kit inventory worth $5,500 to a reseller | Yes | Direct-sales rule applies for $5,000+ | Check Box 2 |
| $650 paid to an incorporated law firm for legal services | Yes | Attorney-fee exception overrides corporate exemption | Box 1 |
| $1,800 paid to a contractor in July 2026 | No | Below the new $2,000 federal threshold starting in 2026 | — |
FAQs for 1099-NEC Threshold
1. Is the minimum threshold for 1099-NEC always $600?
For payments made through the end of 2025, the federal 1099 NEC threshold remains $600. Starting with payments in 2026, the new legislation raises the federal trigger to $2,000, with annual inflation adjustments applied automatically.
2. Do multiple invoices count toward the 1099-NEC threshold?
Yes. Every payment to the same contractor within the same calendar year must be counted toward the 1099-NEC threshold, whether made in cash, check, ACH, or even barter.
3. Are corporations exempt from 1099-NEC filing?
Most corporate recipients are exempt from the 1099-NEC requirement, apart from a few exceptions. Legal-service payments to law firms and certain payments made to federal agencies are still reportable.
4. When is filing required below $600?
A 1099-NEC should be filed for payments below $600 only in specific cases like24% backup withholding due to a missing or incorrect TIN, or for direct sales of $5,000+ of consumer products for resale.
5. Does the 10-form e-file requirement apply?
Yes. If a payer issues ten or more 1099-NEC in a calendar year, e-filing is mandatory.
6. How can a payer correct mistakes?
To correct a mistake, the payer must submit a corrected 1099-NEC by checking the “CORRECTED” box and entering the accurate information. Send this updated copy to both the contractor and the IRS within 30 days of discovering the error to minimize penalties.