When You Must Issue 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 reporting threshold

The basic rule is straightforward: if you pay someone who is not your employee and that person is not incorporated as a business, you may need to report the payment on a Form 1099. The IRS requires you to issue a 1099 when you pay an unincorporated individual or sole proprietor $600 or more in a calendar year for services or products used in your business. The threshold applies to each person separately — if you pay one contractor $400 and another $300, neither triggers a 1099, but if you pay one contractor $600 across multiple payments, you must issue one.

The $600 threshold is the standard for most 1099 forms, but some categories have different limits. Payments to attorneys always require a 1099 if they reach $600 in a year, regardless of business type. Payments for rent, however, follow a $20,000 threshold and also require that you pay the same person at least 20 times in the year. Payments for medical and health care services to unincorporated providers also use $600. If you are unsure whether a specific type of payment has a different threshold, check the instructions for the particular 1099 form you need.

Key Takeaways

• You must issue a 1099 when you pay an unincorporated individual or sole proprietor $600 or more in a calendar year for business services or products.
• Payments to incorporated businesses, C corporations, and S corporations do not require a 1099, even if they exceed $600.
• The $600 threshold applies to each person separately and includes all payments to that person in the same calendar year.
• Some payment categories have different thresholds — rent requires $20,000 and at least 20 payments, while attorney fees use the standard $600 threshold.
• You must issue the 1099 by January 31 of the year following the payment, and send a copy to the IRS by the same date.

Who counts as someone you must issue a 1099 to

A 1099 recipient is typically an unincorporated individual or sole proprietor — someone who works for themselves and has not formed a corporation. This includes freelancers, consultants, contractors, and self-employed service providers. If the person you pay has a business name but no formal business structure, they are still treated as a sole proprietor and may need a 1099.

You do not issue a 1099 to incorporated businesses, even if they are small. If someone operates as an S corporation, C corporation, or LLC taxed as a corporation, you do not report the payment on a 1099. The distinction matters because it changes your reporting obligation. If you are unsure whether someone is incorporated, ask them directly or request their tax identification number — if they provide an EIN (Employer Identification Number) rather than a Social Security Number, they are likely incorporated.

You also do not issue a 1099 to your employees, even if they are paid as independent contractors. If someone works under your direction, you control how and when they work, or they work exclusively for you, they are likely an employee and should be on payroll with a W-2 instead. The IRS has specific tests for worker classification, and misclassifying an employee as a contractor can result in penalties.

Payment types that require a 1099

A 1099 is required for payments for services — work performed by the contractor for your business. This includes consulting, writing, design, repairs, cleaning, accounting, bookkeeping, and similar work. It also includes payments for products purchased from a non-incorporated vendor, such as inventory or materials bought from a sole proprietor.

Not all business payments require a 1099. You do not issue a 1099 for payments to corporations, even if they provide services. You do not issue a 1099 for payments to employees. You do not issue a 1099 for reimbursements of expenses — if you reimburse a contractor for supplies they bought on your behalf, that is not a 1099 payment. You also do not issue a 1099 for payments made to a business for rent, unless the rent threshold is met (which requires $20,000 and at least 20 payments in the year).

Payments for certain services may use a different 1099 form. Payments to attorneys use Form 1099-NEC. Payments for medical services use Form 1099-NEC as well. Payments for rent use Form 1099-MISC. Most other service payments use Form 1099-NEC (which replaced Form 1099-MISC for non-rent payments in 2020). Check the IRS website or your accounting software to confirm which form applies to your specific payment type.

The calendar year and payment timing

The 1099 threshold is based on the calendar year — January 1 through December 31. You add up all payments to the same person during that year and compare the total to $600. If you pay a contractor $400 in March and $300 in November, the total is $700, and you must issue a 1099. If you pay them $600 in December and another $100 in January of the following year, the December payment counts toward the prior year's 1099, and the January payment starts fresh in the new year.

The date you issue the 1099 is not the same as the date of payment. You must issue the 1099 by January 31 of the year following the payments. If you paid a contractor throughout 2024, you must issue the 1099 by January 31, 2025. You must also send a copy to the IRS by the same date. If January 31 falls on a weekend or holiday, the important date moves to the next business day.

If you realize you made an error on a 1099 you already issued, you can file a corrected 1099 using Form 1099-X. You must issue the corrected form by the same January 31 important date if the error is caught before then. If you discover the error after January 31, you can still file a corrected form, but the important date for doing so without penalty is August 1 of that year.

How to collect the information you need

Before you can issue a 1099, you need the contractor's Taxpayer Identification Number (TIN). For most individuals, this is their Social Security Number. For incorporated businesses or sole proprietors who have obtained an EIN, it is their Employer Identification Number. You should request this information when you first hire or contract with someone, using Form W-9. The W-9 is not a tax form — it is a request for the contractor's name, address, and TIN so you can report payments correctly.

Ask the contractor to complete the W-9 before you make the first payment. If they do not provide a TIN, you are required to withhold 24% of their payments as backup withholding and send that amount to the IRS. This is a penalty for non-compliance and creates extra work for both of you. Keep the W-9 on file for at least four years in case the IRS asks to verify your records.

You also need to track the total amount paid to each person during the year. Most accounting software does this automatically if you categorize payments correctly. If you use a spreadsheet or manual records, create a straightforward list by contractor name and add up all payments at the end of the year. Round to the nearest dollar when you report on the 1099.

Reporting to the IRS and the contractor

You must provide two copies of the 1099 to the contractor: one for their records and one for them to attach to their tax return. You must also send a copy to the IRS, along with a Form 1096 (the cover sheet that summarizes all 1099s you are filing). The IRS copy and the 1096 are due by January 31 of the year following payment.

You can file the 1099 and 1096 on paper by mail or electronically through the IRS e-file system. Most tax software and accounting platforms allow you to generate and file 1099s electronically, which is faster and reduces errors. If you file electronically, you still need to send paper copies to the contractor by January 31.

If you file late without reasonable cause, the IRS can assess penalties. The penalty ranges from $50 to $280 per form, depending on how late you file and whether the IRS had to contact you. If you discover you missed a 1099 important date, file the form as soon as possible and include a statement explaining the delay.

Frequently Asked Questions

Do I need to issue a 1099 if I paid someone less than $600?

No. The IRS threshold is $600 per person per calendar year. If you paid a contractor $500 total in 2024, you do not need to issue a 1099. However, you may still want to keep records of the payment for your own accounting purposes.

What if the contractor is incorporated — do I still need a 1099?

No. If the contractor operates as a corporation (C corp, S corp, or LLC taxed as a corporation), you do not issue a 1099 regardless of the payment amount. Ask for their business structure or EIN to confirm. If they provide an EIN, they are likely incorporated.

Can I issue a 1099 to someone who is also my employee?

No. If someone is on your payroll as an employee, you issue them a W-2, not a 1099. The IRS has strict rules about worker classification, and treating an employee as a contractor can result in penalties and back taxes. If you are unsure whether someone should be an employee, consult a tax professional.

What happens if I don't issue a 1099 when I should have?

The IRS can assess penalties ranging from $50 to $280 per missing form. The contractor may also face issues if they do not report the income on their tax return. If you realize you missed a important date, file the 1099 as soon as possible and include a statement explaining the delay.

Do I need to issue a 1099 for payments made by credit card or payment app?

Not necessarily. If you pay a contractor through a payment processor like PayPal, Stripe, or Square, the payment processor may issue the 1099 instead of you. Check with your processor to see who is responsible for reporting. You should still track the payments for your own records.