When Your Contractor or Client Must Send You a 1099

When a business must issue a 1099-NEC or 1099-MISC

A 1099-NEC (nonemployee compensation) is required when you pay a contractor, freelancer, or other self-employed person $600 or more in a single calendar year for services. This applies whether you paid them in cash, check, PayPal, Venmo, or any other method. The threshold is $600 per person per year — if you paid someone $599, no form is required. If you paid them $600 or more, you must send one.

The person receiving the 1099-NEC does not have to be incorporated or have a business license. They just have to be someone you paid for work who is not your employee. A plumber you hired to fix your rental property, a graphic designer you contracted with, a consultant you brought in for a project — all of these trigger the $600 threshold if you reach it in the same calendar year.

1099-MISC (miscellaneous income) covers other types of payments: rent you paid to a landlord, royalties, prizes, awards, and certain other income. The threshold for rent is $600. For most other categories on the 1099-MISC, the threshold is also $600, though some categories have different rules. If you are unsure which form applies to a specific payment, the IRS instructions for each form spell out what goes where.

Key Takeaways

• You must issue a 1099-NEC when you pay a non-employee $600 or more in a calendar year for services, regardless of how you paid them.
• The $600 threshold is per person per year — multiple smaller payments to the same person add up, and you must file once you cross $600.
• Payments to corporations are generally exempt from 1099 reporting, but payments to sole proprietors and LLCs taxed as sole proprietorships are not.
• You must send the form to the recipient by January 31 and file it with the IRS by the same important date (or February 28 if filing on paper).
• Failure to issue a required 1099 can result in IRS penalties ranging from $50 to $280 per form, depending on how late the filing is.

Who is exempt from 1099 reporting

Payments to corporations are exempt. If you hired an incorporated business — a C corporation, S corporation, or professional corporation — you do not issue a 1099-NEC, even if you paid them $600 or more. The corporation files its own tax return and reports the income differently.

Payments to employees are exempt. If someone works for you as an employee, you issue a W-2, not a 1099. The distinction matters: an employee has taxes withheld, receives a W-2, and is covered by employment law. A contractor is self-employed, receives a 1099, and handles their own taxes.

Payments to sole proprietors and single-member LLCs are not exempt — these are treated as self-employed individuals for 1099 purposes. If the person you paid is operating as a sole proprietor or an LLC that is not incorporated, the $600 threshold applies. Ask the person directly if you are unsure of their business structure.

How to determine if you have reached the $600 threshold

Track all payments to each person throughout the calendar year. Add them up by January 31 of the following year. If the total is $600 or more, you must issue a 1099-NEC. This includes payments made in any form: cash, check, credit card, bank transfer, or payment app.

Some businesses use accounting software that tracks this automatically. Others keep a spreadsheet or review their bank and credit card statements. The method does not matter — what matters is that you have an accurate total for each person by the time you need to file.

If you made multiple payments to the same person throughout the year and are unsure of the total, pull your bank statements and payment records for January through December. Add up every payment to that person. If you are close to $600, err on the side of issuing the form — it is better to file when you are not required than to fail to file when you are.

What information you need to issue a 1099-NEC

To fill out a 1099-NEC, you need the recipient's name, address, and tax identification number (either their Social Security number or Employer Identification Number). You also need your own name, address, and tax ID. The form asks for the total amount paid in Box 1 (nonemployee compensation).

If you do not have the person's tax ID, ask them for it before you pay them. Form W-9 is the standard request form — you can ask them to complete it, or straightforward ask them directly for their SSN or EIN. If they refuse to provide it, you are required to withhold 24 percent of future payments under backup withholding rules, though this is rare in practice.

You do not need to itemize every individual payment on the 1099-NEC — just the total for the year. You also do not need to describe what the work was in detail, though some businesses include a brief note for their own records.

important date for sending and filing 1099 forms

You must send a copy of the 1099-NEC to the recipient by January 31 of the year following payment. You must file the form with the IRS by the same date if filing electronically, or by February 28 if filing on paper. Many businesses file electronically to meet the earlier important date and avoid paper processing delays.

If you miss the January 31 important date, penalties explore. The IRS charges $50 per form if you file within 30 days late, $100 per form if you file 31 to 60 days late, and up to $280 per form if you file more than 60 days late. These penalties add up quickly if you have multiple contractors.

Some states also require copies of 1099 forms to be filed with the state tax authority. Requirements vary by state — check your state's tax agency website or ask your accountant whether your state requires state-level filing.

How to file 1099 forms with the IRS

Most small businesses file 1099 forms using IRS FIRE (Filing Information Returns Electronically), the IRS's free online system. You create an account, enter the form data, and submit it electronically. FIRE is available to anyone and requires no software purchase.

Alternatively, you can use tax software or accounting software that handles 1099 filing — many small-business accounting programs include this feature. Some accountants and bookkeepers file 1099s on behalf of their clients for a fee.

If you file on paper, you must use the official IRS 1099-NEC form and mail it to the IRS address listed in the form instructions. Paper filing is slower and carries a higher penalty risk because the IRS processes it manually. Electronic filing is faster and gives you confirmation that the form was received.

Common mistakes to avoid when issuing 1099 forms

The most common mistake is issuing a 1099 to a corporation. Many small business owners do not realize that corporate payments are exempt. If you paid a business and are unsure whether it is incorporated, ask the owner directly or check your state's business database — most states allow you to search business registrations online for free.

Another frequent error is using the wrong form. Nonemployee compensation goes on 1099-NEC. Rent paid to a landlord goes on 1099-MISC. Royalties and prizes go on 1099-MISC. Using the wrong form delays processing and can trigger IRS notices asking for correction.

A third mistake is mismatched names or tax IDs. If the name or SSN on your 1099-NEC does not match the recipient's tax return, the IRS will flag it. Ask the recipient to confirm their legal name and SSN before you file. If you discover a mismatch after filing, you can file a corrected 1099-NEC (marked "CORRECTED" at the top).

Finally, some businesses fail to issue a 1099 when required because they assume the contractor will report the income anyway. The IRS does not rely on that assumption — you are required to file regardless of whether you think the person will report it. Filing protects you from penalties and creates an official record.

Frequently Asked Questions

Do I have to issue a 1099 if I paid someone in cash?

Yes. The form of payment does not matter. Cash, check, PayPal, Venmo, or any other method — if you paid a non-employee $600 or more in a calendar year, you must issue a 1099-NEC. The IRS requires reporting regardless of how the money changed hands.

What if I paid someone $600 total but it was split between two different types of work?

It still counts. The $600 threshold is based on total payments to that person in a calendar year, not on the type of work. If you paid someone $400 for consulting and $200 for design work, that is $600 total, and you must issue a 1099-NEC.

Can I issue a 1099 to a family member?

Yes, if they meet the criteria. If you paid a family member who is not your employee $600 or more for services, you must issue a 1099-NEC. The family relationship does not exempt you from the requirement. However, if the family member is your employee, you issue a W-2 instead.

What happens if I issue a 1099 but the person does not report the income?

That is their responsibility, not yours. Once you have filed the 1099 with the IRS and sent a copy to the recipient, you have met your obligation. If they fail to report it, the IRS will notice the discrepancy when they match the 1099 to the tax return. You are not liable for their failure to report.

Do I need to issue a 1099 if I paid someone through a payment app like PayPal or Square?

You still must issue a 1099-NEC if you reach the $600 threshold. However, note that payment apps like PayPal, Square, and Stripe may also issue their own 1099-K forms if they process payments above certain thresholds. You are responsible for issuing the 1099-NEC based on your records; the payment app's 1099-K is separate and tracks their processing volume.