The 1099-NEC is the form you send to any US-based individual or single-member LLC contractor who you paid six hundred dollars or more during the calendar year for services. It reports to the IRS the same income the contractor is required to report on their own tax return. The form serves as a cross-reference mechanism: the IRS can match 1099s received against what contractors report as income and identify discrepancies. If you paid a contractor two thousand dollars and did not send a 1099, you have not reported that payment to the IRS and neither has that contractor if they choose not to.
Collecting a W-9 from every contractor before you pay them is the practice that makes 1099 filing straightforward. A W-9 provides the contractor's legal name, business name if any, address, taxpayer identification number, and tax classification. Without a W-9 on file, you may need to withhold twenty-four percent of each payment as backup withholding and remit it to the IRS, which creates more administrative complexity than collecting the form upfront. Make W-9 collection a required step in your vendor onboarding process before any work begins.
Not all contractors receive 1099s. Corporations including S-Corps are generally exempt from receiving 1099-NECs for services, though there are specific exceptions for attorneys and medical providers. Payments made through credit card or PayPal are excluded from 1099-NEC reporting because the payment processor issues their own form to the contractor. Contractors paid less than six hundred dollars during the year do not receive a 1099. When in doubt, consult with your accountant about specific situations.
The deadline for sending 1099-NECs to contractors is January 31st of the year following the tax year. The same deadline applies to filing copies with the IRS. The IRS charges penalties for late filing that start at fifty dollars per form and increase significantly for longer delays. Electronic filing through the IRS FIRE system or through payroll software like Gusto that handles 1099 preparation and filing is more reliable and less error-prone than paper filing.
Misclassifying employees as contractors is a separate and more serious issue than 1099 compliance, but the two are related. If you have been paying someone as a contractor who should legally be classified as an employee, the IRS can reclassify the relationship and assess back payroll taxes, interest, and penalties. Review the IRS classification criteria before treating any ongoing worker relationship as contractor rather than employment.
1099 compliance is a December and January discipline: maintain organized records of contractor payments throughout the year so that filing the forms in January is a data export rather than a reconstruction project.