When You Need To Send a 1099 to a Contractor or Vendor

You issue a 1099 when you pay a non-employee for services or products, and the payment meets the IRS threshold for that form type

The IRS requires you to send a 1099 form to report payments you made to people or businesses who are not your employees. The specific form depends on what you paid for — 1099-NEC for non-employee compensation (services), 1099-MISC for miscellaneous income, 1099-K for payment card transactions, and others. The threshold that triggers the requirement varies by form type and by what was paid.

You must also send a copy to the IRS and keep a copy for your records. The important date is January 31 of the year following the payment. If you miss the important date or issue the form incorrectly, the IRS can assess penalties, though they may be waived if you correct the error within a reasonable time.

The key rule: if you paid someone who is not on your payroll, and the payment crossed the threshold, you almost certainly owe a 1099. The most common mistake is treating a contractor as an employee to avoid paperwork — that creates tax liability for both you and the worker.

Key Takeaways

• You must issue a 1099-NEC if you paid a non-employee $600 or more for services in a calendar year.
• You must issue a 1099-MISC if you paid $600 or more for rent, prizes, medical payments, or other miscellaneous income (rules vary by payment type).
• You must issue a 1099-K if a payment processor (like PayPal, Square, or your merchant account) processed $5,000 or more in card or third-party network transactions in a year, though this threshold is changing.
• The form is due to the recipient by January 31 and to the IRS by the same date (or March 31 if filing on paper).
• Penalties for missing or incorrect 1099s range from $50 to $280 per form, depending on how late you file and whether the error was intentional.

The $600 threshold for 1099-NEC and 1099-MISC

The $600 rule applies to most 1099 forms you will issue. If you paid a contractor, freelancer, vendor, or other non-employee $600 or more in a single calendar year for services or products, you must issue a 1099-NEC (for services) or 1099-MISC (for other types of income).

The threshold is per person, per year. If you paid the same contractor $300 in January and $400 in December, that is $700 total — you owe a 1099. If you paid five different contractors $500 each, you owe nothing to any of them because each individual stayed under $600.

The $600 threshold applies whether you paid by check, cash, credit card, bank transfer, or any other method. Some business owners mistakenly believe that cash payments do not require a 1099 — they do, if the total hits $600. The IRS does not care how the money moved; it cares that you reported it.

When 1099-NEC is required (services and non-employee compensation)

Use 1099-NEC when you pay someone for work or services and they are not your employee. This includes contractors, consultants, freelancers, repair people, accountants, lawyers, and any other service provider. The threshold is $600 in a calendar year.

Common situations that require a 1099-NEC: you paid a plumber $800 to fix your business pipes; you paid a graphic designer $1,200 for logo work; you paid a consultant $500 in January and $200 in June (total $700, so you owe a 1099); you paid a cleaning service $650 to clean your office.

Do not issue a 1099-NEC to your employees, even if they are part-time or seasonal. Employees get a W-2, not a 1099. If someone works for you regularly, receives a paycheck from you, and you withhold taxes, they are an employee — issue a W-2 instead.

When 1099-MISC is required (rent, prizes, and other payments)

1099-MISC covers payments that are not services. The most common are rent payments to a landlord ($600 or more), prizes or awards ($600 or more), and medical or health care payments ($600 or more). The rules vary by what you paid for, so check the specific box on the form.

Example: you own a business and rent office space for $1,500 a month. You owe your landlord a 1099-MISC for the year's rent. Another example: you run a contest and give away a prize worth $800 — you owe the winner a 1099-MISC. A third example: you are a business and paid a doctor $700 for a medical exam of an employee — you owe the doctor a 1099-MISC.

The $600 threshold for 1099-MISC is not universal. Some boxes on the form (like prizes) have a $600 threshold; others (like medical payments) also use $600. Read the instructions for the specific box you are filling to confirm the threshold applies to your situation.

When 1099-K is required (payment processors and merchant accounts)

1099-K is issued by payment processors — companies like PayPal, Square, Stripe, or your bank's merchant account — not by you. They issue it to report card and third-party network transactions (like Venmo, Apple Pay, or other digital wallets). The threshold has been $20,000 and 200 transactions, though the IRS has delayed and modified this rule multiple times.

As of 2024, the threshold is $5,000 for the year, with no transaction count requirement. However, the IRS has announced plans to change this again in future years, so check the current year's instructions before assuming the threshold. The processor sends the 1099-K to you and the IRS automatically — you do not issue it yourself.

If you receive a 1099-K from a processor, you do not also issue a 1099-NEC or 1099-MISC for the same payment. The processor's 1099-K is the official record. However, if you paid someone directly (by check or bank transfer) and did not use a processor, you still owe them a 1099-NEC or 1099-MISC if the threshold is met.

Who you do not have to issue a 1099 to

You do not issue a 1099 to your employees. Employees receive a W-2 instead, which you issue by January 31. You also do not issue a 1099 to corporations (with rare exceptions). If you paid a plumbing company (a corporation) $5,000, you generally do not owe a 1099-NEC. If you paid a sole proprietor plumber $5,000, you do.

You do not issue a 1099 if the payment is below the threshold for that form type. You do not issue a 1099 for payments to vendors for goods (like office supplies from a wholesaler), unless the payment is for services or falls into a specific 1099-MISC category. You do not issue a 1099 for reimbursements — if you paid a contractor $1,000 and they reimbursed you $200 for supplies, you report the net $800.

You do not issue a 1099 to a business that provided you with a valid W-9 form and is a corporation. The W-9 tells you the payee's tax ID and confirms they are not an employee. If they are a sole proprietor or partnership, you still owe a 1099 if the threshold is met, even with a W-9 on file.

important date and penalties for late or incorrect 1099s

The important date to send a 1099 to the recipient is January 31 of the year following the payment. The important date to send it to the IRS is also January 31 if you file electronically, or March 31 if you file on paper. Missing either important date triggers penalties.

The IRS penalty for a late or incorrect 1099 ranges from $50 per form (if you file within 30 days of the important date) to $280 per form (if you file more than 60 days late or intentionally ignore the requirement). If you issue 10 incorrect 1099s, the penalty could be $500 to $2,800. The IRS may waive penalties if you correct the error within a reasonable time and show good cause.

If you issue a 1099 with the wrong amount, name, or tax ID, contact the recipient and the IRS to file a corrected form (1099-NEC-C or 1099-MISC-C). Do this as soon as you discover the error — the longer you wait, the harder it is to claim reasonable cause if the IRS assesses a penalty.

How to get the information you need before issuing a 1099

Before you issue a 1099, you need the payee's name, address, and tax identification number (TIN). For individuals, this is their Social Security number (SSN). For businesses, it is their Employer Identification Number (EIN). Ask the payee to complete a W-9 form, which provides this information and confirms they are not an employee.

If the payee does not provide a W-9 or gives you an incorrect TIN, you must issue the 1099 with the information you have and note the discrepancy. If the IRS later tells you the TIN is wrong, you can file a corrected 1099. Do not delay issuing the form while waiting for a W-9 — issue it by January 31 with the best information you have, then correct it if needed.

Keep a copy of the W-9 and your payment records (invoices, receipts, bank statements) for at least three years. The IRS may ask to see them if they audit your 1099 reporting.

Frequently Asked Questions

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

Yes, if the total payment to that person in the calendar year is $600 or more. The IRS does not exempt cash payments from the 1099 requirement. You must track cash payments the same way you track check or card payments and issue a 1099 if the threshold is met.

What if the contractor did not give me a W-9?

Issue the 1099 anyway with the information you have (name, address, and tax ID if you know it). If you do not have a tax ID, you can issue the form with the contractor's name and address and note that the TIN is missing. The contractor may face penalties for not providing a W-9, but that does not relieve you of your obligation to report the payment.

Do I issue a 1099 if I paid a business instead of an individual?

It depends on the business structure. If you paid a sole proprietor or partnership $600 or more for services, you owe a 1099-NEC. If you paid a corporation, you generally do not owe a 1099-NEC, though you may owe a 1099-MISC for certain types of payments like rent. Ask the payee for their business structure or request a W-9 to confirm.

What happens if I issue a 1099 with the wrong amount?

File a corrected 1099 (marked as "Corrected" on the form) as soon as you discover the error. Send the corrected form to the recipient and the IRS by January 31 of the following year, or as soon as possible if you discover the error after that date. Keep both the original and corrected forms in your records.

Can I issue a 1099 after January 31?

You can, but you will likely owe a penalty. The IRS assesses penalties for 1099s filed after January 31, starting at $50 per form if filed within 30 days of the important date and increasing to $280 per form if filed more than 60 days late. File as soon as you realize you missed the important date and explain the delay to reduce or eliminate the penalty.