How To Report Payments to a Contractor on Form 1099-NEC

What "1099-ing" someone means and when you have to do it

To "1099" a person means to report non-employee payments you made to them on a Form 1099-NEC (or Form 1099-MISC for certain types of payments). You send one copy to the contractor and another to the IRS. The IRS uses these forms to verify that the person reported the income on their tax return.

You must issue a 1099-NEC if you paid a non-employee contractor $600 or more in a calendar year for services. This applies whether you paid them in cash, check, bank transfer, or payment app. The threshold is $600 for most service payments, though some categories (like attorney fees or medical payments) have different rules.

If you paid someone less than $600, you do not have to file a 1099-NEC with the IRS, though you may still want to keep records of the payment for your own tax purposes. If you paid an employee (someone on your payroll), you use Form W-2 instead, not a 1099.

Key Takeaways

• You must issue a 1099-NEC for any non-employee contractor you paid $600 or more in a single calendar year for services.
• The contractor's name, address, and tax ID (usually their Social Security Number or EIN) must be correct on the form, or the IRS will reject it.
• You file 1099-NECs with the IRS by January 31 of the year after payment, and you must give a copy to the contractor by the same date.
• Payment apps like Venmo, PayPal, and Cash App may issue 1099-Ks automatically if your volume exceeds their threshold, which varies by state and year.
• Failing to file required 1099s can result in IRS penalties starting at $50 per form, plus potential accuracy-related penalties if the contractor underreports income.

Gathering the contractor's information before you file

Before you can file a 1099-NEC, you need the contractor's full legal name, current mailing address, and tax identification number. For most individuals, this is their Social Security Number (SSN). If they operate as a business entity, you need their Employer Identification Number (EIN) instead.

Ask the contractor for this information in writing — ideally when you first hire them. You can use IRS Form W-9 (Request for Taxpayer Identification Number and Certification), which is a standard form that contractors expect. If they refuse to provide a tax ID, you are required to withhold 24% of their payments under "backup withholding" rules, which you then send to the IRS.

Verify the information is correct before filing. A wrong name or tax ID will cause the IRS to reject the form or match it to the wrong person's tax return. If you discover an error after filing, you can file a corrected 1099-NEC (Form 1099-NEC with "CORRECTED" marked in the top left).

Calculating the amount to report

Add up all payments you made to that contractor during the calendar year (January 1 through December 31). Include payments made by any method: cash, check, credit card, bank transfer, or payment app. Do not subtract expenses, taxes, or anything else — report the gross amount paid.

If you used a payment app like PayPal, Stripe, or Square, those platforms track your payments and may issue their own 1099 forms (usually 1099-K). Check with the contractor to see if they received a 1099-K from the payment processor. If they did, you may not need to file a separate 1099-NEC, though the rules vary depending on the type of payment and the app's reporting threshold.

If you paid the contractor partly in non-cash items (for example, you gave them equipment or services instead of money), those items generally do not count toward the $600 threshold. Report only the cash or cash-equivalent payments.

Completing Form 1099-NEC step by step

Form 1099-NEC has boxes for different types of payments. Box 1 is "Nonemployee Compensation" and is where most service payments go. If you paid for something else — like rent, royalties, or medical services — the payment may belong in a different box. Check the form instructions to confirm.

Fill in the contractor's name and address in boxes 2 and 3. Enter their tax ID in box 5a (SSN) or 5b (EIN). In box 1, enter the total amount you paid them. Leave other boxes blank unless you have a specific reason to fill them (for example, if you withheld taxes under backup withholding, that goes in box 4).

In the "Account number" box (optional), you can enter your internal reference number for that contractor, which helps you track the payment if you need to correct it later. Sign and date the form. You need two copies: one to send to the IRS and one to send to the contractor.

Filing with the IRS and sending to the contractor

You have two options for filing: paper or electronic. Most businesses file electronically through the IRS e-file system or through a tax software provider. Paper forms are still accepted but take longer to process and are more prone to errors.

The important date is January 31 of the year after payment. For example, payments made in 2024 must be reported by January 31, 2025. You must send a copy to the contractor by the same date. Many contractors expect to receive their 1099 by mid-January, so filing early avoids last-minute scrambles.

If you file electronically, the IRS receives the forms directly. If you file on paper, you mail Copy A (the IRS copy) to the IRS address listed in the form instructions — this varies by state. Keep Copy C for your records. Send Copy B to the contractor by mail or, in some cases, electronically if they consent.

What happens if you miss the important date or file incorrectly

The IRS charges penalties for late or missing 1099s. As of 2024, the penalty is $50 per form if you file within 30 days of the important date, $100 per form if you file more than 30 days late (up to a maximum of $1.6 million per year for large filers). Intentional disregard carries higher penalties.

If you file a 1099 with the wrong amount or the contractor's information, file a corrected form as soon as you notice. Mark it "CORRECTED" at the top and file it the same way you filed the original. Send a corrected copy to the contractor as well. Corrected forms do not reset the important date — file them as soon as you discover the error.

If the contractor did not report the income on their tax return and the IRS matches your 1099 to their return, the IRS may assess additional tax and penalties to them. You are not liable for their failure to report, but filing accurate 1099s protects both you and the contractor from IRS scrutiny.

Payment apps and automatic 1099 reporting

If you paid the contractor through a payment app like Venmo, PayPal, Cash App, or Square, the app may file a 1099-K automatically on your behalf. The threshold for automatic reporting varies: as of 2024, most apps report when payments exceed $5,000 in a year, though this threshold has changed in recent years and may vary by state.

Check with the contractor to see if they received a 1099-K from the payment processor. If they did, you typically do not need to file a separate 1099-NEC. However, if the app did not issue a 1099-K (because the total was below their threshold) and you paid $600 or more, you still must file a 1099-NEC yourself.

Some payment apps allow you to designate payments as business or personal. Marking a payment as personal does not exempt you from filing a 1099 — the IRS rule is based on the amount and type of payment, not how you label it in the app. If you paid a non-employee contractor $600 or more for services, you must report it regardless of the app's category.

Frequently Asked Questions

Do I have to 1099 someone if I paid them through a payment app?

Only if the payment app did not already issue a 1099-K and you paid $600 or more in the year. Check with the contractor to see if they received a 1099-K. If they did not and you met the $600 threshold, you must file a 1099-NEC yourself by January 31.

What if the contractor refuses to give me their tax ID?

You are required to withhold 24% of all future payments to them under backup withholding rules and send that amount to the IRS. You must also still file a 1099-NEC with the IRS showing the gross amount paid, even without their tax ID. This situation is rare and usually resolved once the contractor understands the consequence.

Can I 1099 a family member or friend?

Yes, if they are a non-employee and you paid them $600 or more for services in the year. The relationship does not matter — the rule is based on whether they are an employee and the amount paid. Treat them the same as any other contractor.

What if I paid someone $600 but they say they did not receive a 1099?

You are still required to file it with the IRS by January 31. If you filed correctly and they did not receive their copy, resend it or file a corrected form. Keep records showing you filed and when. The IRS will have a record of the form you submitted.

Do I need to 1099 an LLC or corporation I paid?

Generally no, unless the LLC is a single-member LLC taxed as a sole proprietorship. If the contractor is a multi-member LLC, S-corp, or C-corp, you typically do not file a 1099-NEC. Ask the contractor for their business structure to confirm, or check their tax ID — an EIN starting with certain numbers indicates a corporation.