Every January, businesses discover they paid a designer $4,000 during the year and have no idea of her legal name, address or tax number. The form is due at the end of the month. She does not reply. The penalty clock starts on February 1. The whole thing is avoidable with one question asked before the first invoice is paid.
Who gets one
Form 1099-NEC reports payments for services to non-employees: freelancers, contractors, agencies structured as sole proprietors or partnerships, attorneys (always, whatever their entity), and directors' fees. Payments to corporations are generally exempt, except legal fees. Payments to an LLC depend on how the LLC is taxed, which is exactly what the W-9 tells you: a single-member LLC or partnership gets a 1099; an LLC taxed as a corporation does not.
Payments for goods do not need one. Rent, royalties and some other categories go on Form 1099-MISC instead.
The threshold
For payments made in 2025, reported in January 2026: $600 or more in the year. For payments made in 2026 onward: $2,000 or more, following the 2025 legislation, indexed for inflation from 2027. The change reduces the count for most small businesses; it does not change the need for a W-9, because you do not know in January whether next year's total will cross the line.
Contractors outside the US
A non-US person performing services entirely outside the US does not receive a 1099-NEC. Collect a W-8BEN (individual) or W-8BEN-E (entity) instead, and keep it on file; it documents why no 1099 was issued and why no withholding was taken. If any of the work is performed physically in the US, the analysis changes and withholding may apply. This is the most common question from founders with teams in India, the Philippines and Eastern Europe, and the answer is usually: W-8, no 1099.
Paid through a platform?
Payments made by credit card or through a third-party settlement network (PayPal goods and services, Upwork, Fiverr, Stripe) are reported by the platform on Form 1099-K, not by you. You do not issue a 1099-NEC for those. Direct bank transfers, cheques, Zelle and cash are yours to report. The 1099-K threshold was restored to $20,000 and 200 transactions from 2025.
The process
- Before the first payment: W-9 from every US contractor, W-8 from every non-US one. Make it a condition of onboarding.
- Through the year: track contractor payments by payee in the accounting file; QuickBooks and Xero both tag vendors for 1099 reporting.
- Early January: run the 1099 report, confirm totals, check names and TINs against the W-9s, note payment methods to exclude card and platform payments.
- By January 31: furnish Copy B to each contractor and file with the IRS. E-filing is mandatory for anyone filing ten or more information returns in aggregate (all types combined), which now includes most businesses. The IRS's free IRIS portal or a filing service handles it.
- State filing: many states require their own copy or participate in the combined federal/state programme; check each state where a contractor lives.
Penalties
Per form, tiered by lateness: roughly $60 if filed within 30 days, $130 by August 1, $340 after that, and double for intentional disregard, applied to both the IRS copy and the contractor copy. Twenty late forms is a four-figure problem. A missing TIN also triggers backup withholding obligations of 24% on future payments to that payee.
The check: list everyone you paid for services this year by bank transfer. For each, do you have a signed W-9 or W-8? The ones you do not are the January problem, and they are easier to reach in October.