What is a 1099-NEC form? Filing rules and deadlines

Published Wednesday 6 May 2026

Table of contents

• Who should complete a 1099-NEC?
• What is nonemployee compensation?
• 1099-NEC filing deadlines
• 1099-NEC vs other 1099 forms
• What do you have to do as the payer?
• How do you fill in a 1099-NEC form?
• How do you file a 1099-NEC form?
• What do you need to do if you are the payee?
• Penalties for late 1099-NEC filing
• Manage 1099-NEC filing with Xero
• FAQs on 1099-NEC forms

Key takeaways

• File a 1099-NEC form when you pay $600 or more ($2,000 or more for tax year 2026 onward under the One Big Beautiful Bill Act) to independent contractors, freelancers, or certain business entities for services during the tax year. Skip this requirement for credit card or third-party processor payments like PayPal.
• Collect W-9 forms from contractors before making payments to get their taxpayer identification numbers, then prepare and file 1099-NEC forms with the IRS by January 31 of the following year.
• Report all 1099-NEC income on your tax return if you're the recipient, even if you don't receive the form, and prepare to pay both federal income tax and 15.3% self-employment tax on those earnings.
• Avoid IRS penalties that start at $60 per form for late filing by preparing your 1099-NEC forms early in January. Penalties increase the longer you wait, reaching up to $660 per form for intentional disregard.

Who should complete a 1099-NEC?

You must file a 1099-NEC if you paid a non-employee at or above the reporting threshold for services during the tax year. This applies to payments made to freelancers, independent contractors, and certain business entities. Note that this form is only for non-employees; if you pay employees, you report their wages on a W-2 form instead.

For tax year 2025 and prior years, the reporting threshold is $600 or more in total payments. Starting with tax year 2026, the One Big Beautiful Bill Act raises this threshold to $2,000.

File a 1099-NEC when all of these conditions apply:

• Recipient status: you paid someone who is not your employee
• Business purpose: you paid for services performed in the course of your trade or business
• Entity type: you paid an individual, single-member LLC, partnership, LLC taxed as a partnership, or estate
• Payment threshold: total payments reach $600 or more for the year ($2,000 for tax year 2026 and later)

Payments can include cash or non-cash benefits such as trade.

You don't need to file a 1099-NEC for credit card, debit card, or third-party processor payments like PayPal. Those financial institutions report these payments separately.

If a contractor doesn't provide a taxpayer identification number (TIN) on their W-9, you're required to apply backup withholding at a rate of 24% on their payments. You must then report the withheld amount on the 1099-NEC.

What is nonemployee compensation?

Nonemployee compensation is any payment you make to someone who performs services for your business but isn't your employee. The IRS considers a payment nonemployee compensation when 4 conditions are met.

Those 4 conditions are:

• You made the payment to someone who is not your employee
• You made the payment for services in the course of your trade or business
• You made the payment to an individual, partnership, estate, or in some cases a corporation
• You paid $600 or more to that person during the tax year ($2,000 for tax year 2026 and later)

Common examples of nonemployee compensation include:

• Fees paid to consultants, freelancers, and independent contractors
• Commissions paid to non-employee salespeople
• Professional service fees (accounting, legal, design)
• Prizes and awards for services performed
• Payments to gig workers such as rideshare drivers, delivery workers, and freelance platform contractors

You can find more details in the IRS instructions for Form 1099-NEC.

1099-NEC filing deadlines

The 1099-NEC filing deadline is January 31 of the year following the tax year. This deadline applies to both IRS filing and providing copies to recipients.

Here are the key filing dates to keep in mind:

• January 31: file 1099-NEC forms with the IRS
• January 31: send copies to all payees
• Next business day: if January 31 falls on a weekend or holiday, the deadline shifts to the following business day

If you miss the deadline, IRS penalties increase the longer you wait to file. For returns due in 2026, the penalty is $60 per form if you file up to 30 days late and increases from there. It's best to prepare your forms early in January.

1099-NEC vs other 1099 forms

The 1099-NEC specifically reports nonemployee compensation, while other 1099 forms cover different types of income. Understanding the differences helps you avoid double-reporting or filing the wrong form.

The most common 1099 forms differ as follows:

• 1099-NEC: reports payments of $600 or more to independent contractors and freelancers for services ($2,000 for tax year 2026 onward)
• 1099-MISC: reports miscellaneous income like rent, prizes, royalties, and other payments not classified as nonemployee compensation
• 1099-K: reports payments processed through third-party networks like PayPal, Venmo, or credit card processors

Before 2020, payers reported nonemployee compensation on the 1099-MISC. The IRS reintroduced the 1099-NEC after the PATH Act accelerated the due date.

One key point about the 1099-K: if you already received a 1099-K for payments processed through a third-party network, don't also report those same payments on a 1099-NEC. Doing so would result in double-reporting. Only file a 1099-NEC for payments made directly (by check, cash, or direct deposit) to the contractor.

What do you have to do as the payer?

As the payer, you must collect tax information, prepare forms, and meet IRS deadlines. Here are your 4 key tasks:

1. Collect W-9 forms from every contractor before making payments. The W-9 gives you their name, address, and taxpayer identification number (TIN).
2. Prepare 1099-NEC forms for each contractor who meets the reporting threshold.
3. File with the IRS by January 31 of the following year.
4. Send copies to payees by January 31 of the following year.

If a contractor refuses to provide a TIN or gives you an incorrect one, you're required to withhold 24% of their payments as backup withholding. Report the withheld amount in Box 4 of the 1099-NEC.

Learn more about how Xero can help you with 1099s.

How do you fill in a 1099-NEC form?

A 1099-NEC form requires basic information about both the payer and recipient, plus payment details. Here's a box-by-box breakdown of what to include.

Payer and recipient information

At the top of the form, fill in the payer's name, address, and TIN. Then enter the recipient's name, address, and TIN. This information should match what the contractor provided on their W-9.

Box 1: nonemployee compensation

Enter the total amount you paid to the contractor during the tax year. This includes fees, commissions, prizes, and any other forms of nonemployee compensation.

Box 2: payer made direct sales totaling $5,000 or more

Check this box if you sold $5,000 or more of consumer products to the recipient for resale outside a permanent retail establishment. Most businesses leave this box empty.

Box 4: federal income tax withheld

If you withheld federal income tax from the contractor's payments (backup withholding), enter that amount here. This applies when a contractor doesn't provide a valid TIN.

Boxes 5, 6, and 7: state information

Use these boxes to report state tax information if your state participates in the Combined Federal/State Filing Program. Enter the state, state ID number, and state income in the corresponding boxes.

For complete details, refer to the IRS instructions for Form 1099-NEC.

How do you file a 1099-NEC form?

You can file 1099-NEC forms electronically or by mail. Electronic filing is the fastest option, and the IRS requires it if you have 10 or more information returns.

The 1099-NEC is a multi-part form. Each copy goes to a different recipient:

• Copy A: filed with the IRS
• Copy B: sent to the recipient (the contractor or payee)
• Copy 1: filed with your state tax agency, if applicable
• Copy 2: kept by the recipient for their state tax return
• Copy C: kept by you (the payer) for your records

You can get 1099-NEC forms from several sources, including e-filing services, office supply stores, or directly from the IRS. If you file on paper, you must use the official IRS-issued forms with the scannable red ink; photocopied forms are not accepted for Copy A.

Here are your filing methods:

• IRS IRIS system: the IRS Information Returns Intake System (IRIS) is a free e-filing portal for 1099 forms
• IRS FIRE system: the Filing Information Returns Electronically system is another electronic option for larger filers
• E-filing service providers: third-party services that handle filing on your behalf
• Paper filing by mail: send completed forms to the IRS processing center for your state

If you use Xero, you can e-file directly through integrated partners in the Xero App Store, including Track1099, Tax1099, 1099SmartFile, TaxBandits, and Yearli.

What do you need to do if you are the payee?

If you're an independent contractor or freelancer, you should receive a 1099-NEC from each client who paid you at or above the reporting threshold. You must report all income on your tax return, whether or not you receive a 1099.

Beyond reporting the income, you're responsible for paying self-employment tax on your 1099-NEC earnings. Self-employment tax covers Social Security and Medicare and is currently 15.3% of your net earnings. You'll report this on Schedule C along with your federal income tax.

Because taxes aren't withheld from 1099-NEC payments, you'll likely need to make estimated quarterly tax payments to the IRS. Missing these payments can result in underpayment penalties.

You can reduce your taxable income by deducting ordinary and necessary business expenses, such as software subscriptions, office supplies, and travel costs. You may also qualify for the qualified business income (QBI) deduction, which allows eligible self-employed individuals to deduct up to 20% of their qualified business income.

If you need to send invoices to your clients, check out the contractor invoice template to get started.

Penalties for late 1099-NEC filing

The IRS imposes penalties for filing 1099-NEC forms late, and the amount increases the longer you wait. Filing on time helps you avoid unnecessary costs.

Here is the penalty schedule for returns due in 2026:

• $60 per form: if you file within 30 days of the deadline
• $130 per form: if you file more than 30 days late but by August 1
• $340 per form: if you file after August 1 or don't file at all
• $660 per form: if the IRS determines you intentionally disregarded the filing requirement

Small businesses with average annual gross receipts of $5 million or less may be subject to lower maximum penalties. For the most up-to-date penalty amounts, check the IRS information return penalties page.

Manage 1099-NEC filing with Xero

Tracking contractor payments and filing 1099-NEC forms doesn't have to be a headache. Xero's accounting software helps you stay organized throughout the year so you're ready when January rolls around.

With Xero, you can track payments to contractors, categorize expenses, and connect with e-filing partners to submit your 1099s directly. You can also collaborate with your accountant or bookkeeper in real time to make sure everything is accurate before you file.

Explore all Xero features to see how the platform can simplify your financial management.

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FAQs on 1099-NEC forms

Here are frequently asked questions about 1099-NEC forms.

Do I have to report a 1099-NEC on my taxes?

Yes, you must report all 1099-NEC income on your federal tax return, even if the amount is below the filing threshold or you didn't receive the form. The IRS considers this taxable income regardless of whether a 1099 was issued.

What taxes do I pay on 1099-NEC income?

You pay federal income tax and self-employment tax on 1099-NEC income. Self-employment tax is currently 15.3% and covers Social Security and Medicare. You may also owe state income tax depending on where you live.

Do I need to send a 1099-NEC to an LLC?

It depends on how the LLC is taxed. You must send a 1099-NEC to single-member LLCs, partnerships, and LLCs taxed as partnerships. You generally don't need to send one to LLCs taxed as C corporations or S corporations, with some exceptions for legal and medical services.

What is the difference between 1099-NEC and 1099-MISC?

The 1099-NEC reports nonemployee compensation (payments for services), while the 1099-MISC reports other types of miscellaneous income like rent, royalties, and prizes not tied to services. Before 2020, nonemployee compensation was reported on the 1099-MISC, but the IRS brought back the 1099-NEC as a separate form.

What is the new 1099-NEC threshold for 2026?

Starting with tax year 2026, the reporting threshold increases from $600 to $2,000 under the One Big Beautiful Bill Act. This means you only need to file a 1099-NEC for contractors you paid $2,000 or more during the tax year. The $600 threshold still applies for tax year 2025 and prior.

What if I receive both a 1099-NEC and a 1099-K?

If you receive both forms, make sure the same income isn't reported twice. A 1099-K covers payments processed through third-party networks like PayPal or credit card processors, while a 1099-NEC covers direct payments. Report each amount as shown on the respective form, and note on your tax return if there's overlap to avoid double-counting.