If your business pays independent contractors, freelancers, or other non-employees for services, you almost certainly have 1099-NEC filing obligations. The form is how the IRS tracks income paid outside payroll, and the rules are strict. Missing them is one of the most common — and most avoidable — sources of penalties for small businesses.
The threshold
You must file a 1099-NEC for each non-employee paid $600 or more in total during the year for services in the course of your business. Below $600 to a given payee, no 1099-NEC is required — though the recipient still owes tax on the income.
Who Gets One — and Who Doesn't
Issue a 1099-NEC to independent contractors, freelancers, consultants, and unincorporated service providers (sole proprietors, single-member LLCs, partnerships). Attorneys are reported even if incorporated. You do NOT issue one to C-corps or S-corps (with limited exceptions), to employees (they get a W-2), for goods or inventory, or for payments made by credit card or third-party network.
The credit-card exception
If you pay a contractor by credit card, debit card, or a third-party network (PayPal, etc.), you do not issue a 1099-NEC — the processor reports it on Form 1099-K. Only cash, check, and ACH/bank transfers count toward your obligation. Mixing these up double-reports the income.
The W-9 Is Your First Line of Defense
- Confirms whether the payee is incorporated (and possibly exempt)
- Gives you the correct TIN, avoiding mismatch penalties
- Establishes backup withholding (currently 24%) if a valid TIN isn't provided
- Eliminates the year-end scramble to chase down information
Filing Deadlines
| Task | Deadline |
|---|---|
| Furnish copy to the recipient | January 31 |
| File with the IRS (paper or electronic) | January 31 |
Both copies are due January 31 — there's no later deadline for the IRS copy. Businesses filing 10 or more information returns in aggregate must file electronically.
Key takeaway
The mechanics are simple if you build them into your process: collect a W-9 before paying, track payments by payee and method all year, exclude corporations and credit-card payments correctly, and file both copies by January 31. The expensive mistakes all stem from leaving the work until year-end.
SMAART Tax Team
CPAs & Enrolled Agents, SMAART Tax