Until 2020, all contractor pay went on Form 1099-MISC, box 7. Then the IRS resurrected Form 1099-NEC ("non-employee compensation") and the same payment landed on a different form. Filers have been confused ever since.
Here's the working decision tree, plus the deadlines and penalties.
The decision tree
For each payee you've sent $600 or more in a calendar year:
Did you pay them for services performed in their trade or business?
├── Yes → 1099-NEC
└── No
├── Rent ($600+) → 1099-MISC, box 1
├── Royalties ($10+) → 1099-MISC, box 2
├── Prize / award → 1099-MISC, box 3
├── Medical / healthcare ($600+) → 1099-MISC, box 6
├── Attorney gross proceeds (settlements) → 1099-MISC, box 10
├── Crop insurance → 1099-MISC, box 9
└── Section 409A deferred comp → 1099-MISC, box 14
Most freelancers / sole props will only ever issue 1099-NECs. If you also pay rent or royalties, you'll issue some 1099-MISCs too.
Who you do not send a 1099 to
- Corporations (C-corp or S-corp) — exempt by default. The exception: attorney fees and medical payments always require a 1099, even to a corporation.
- LLCs taxed as a corporation — exempt. (LLCs taxed as partnerships or sole props do get 1099s.)
- Vendors paid via credit card or third-party payment network — those payments are reported on 1099-K by the processor, not by you. Don't double-report.
- Payees under the $600 threshold ($10 for royalties).
- Tax-exempt organizations.
The card / payment-network rule is the trap most people miss. If you paid your contractor $20K via Stripe, you don't issue a 1099-NEC — Stripe issues a 1099-K. Issue both and you've over-reported the contractor's income.
How to know if a vendor is a corporation
Form W-9 from the vendor. Box 3 of the W-9 lists their tax classification. Get a W-9 from every vendor you might pay $600+ to before you make the first payment. Chasing W-9s in January is the most painful and avoidable part of 1099 season.
For new vendors: don't issue the first check without a signed W-9. If they refuse, you must withhold 24% (backup withholding) and remit it via Form 945.
Deadlines for 2025 payments
| Form | Recipient deadline | IRS deadline (paper) | IRS deadline (e-file) | |---|---|---|---| | 1099-NEC | Jan 31, 2026 | Jan 31, 2026 | Jan 31, 2026 | | 1099-MISC (no box 8/10) | Jan 31, 2026 | Feb 28, 2026 | Mar 31, 2026 | | 1099-MISC (with box 8/10) | Feb 17, 2026 | Feb 28, 2026 | Mar 31, 2026 |
1099-NEC has a single, early deadline because it's used for fraud detection on contractor returns. Late = penalty.
Penalties for late or missing 1099s
The IRS scales penalties by how late the form is:
- <30 days late: $60/form (max $232K/yr small business)
- 31 days late through Aug 1: $130/form (max $664K/yr)
- After Aug 1 or never filed: $330/form (max $1.3M/yr)
- Intentional disregard: $660/form, no cap
Plus the deduction can be disallowed under §274(d). If you don't issue 1099s for contract labor, the IRS can challenge the deduction itself — see Schedule C deductions checklist for the contract-labor line specifically.
E-file vs paper
Since 2024, anyone filing 10 or more information returns total (1099s + W-2s combined) must e-file. Paper filing is only for the smallest sole props.
Approved e-file paths:
- IRS IRIS portal (free, manual entry)
- IRS FIRE system (legacy, requires TCC)
- Third-party tax-software providers (Intuit, Tax1099, Track1099)
How to actually send them
The recipient gets Copy B by January 31. The IRS gets Copy A.
For the recipient: physical mail or — if the recipient consents in advance — electronic delivery. Email a PDF without prior consent is technically non-compliant.
For the IRS: e-file via one of the paths above. The transmission generates a confirmation; save it.
Common mistakes
- Issuing 1099s for credit-card payments — the processor handles this on 1099-K. You'd be double-reporting.
- Skipping payments to LLCs — LLCs taxed as sole props or partnerships still need 1099s. Always check the W-9.
- Forgetting attorney payments — even if the law firm is a C-corp, attorney payments require a 1099.
- Using the wrong tax ID — a typo in the TIN triggers a CP2100 notice and starts the backup-withholding clock.
- Forgetting state copies — most states want their own 1099 copy. Some are part of the Combined Federal/State Filing program; some require a separate filing.
Treat 1099 prep as part of your year-end packet alongside the work covered in bookkeeping for freelancers: 5-step minimum and receipt requirements — getting all three right in January saves a lot of February pain.
How ExpenseGhost helps
ExpenseGhost flags transactions that might require a 1099 (over $600/yr to the same vendor, paid by ACH/check, vendor not marked as corporation). At year-end, the system generates a 1099 worksheet that imports cleanly into Track1099 or IRIS. See pricing.
FAQ
What if I pay a contractor partially by check and partially by credit card?
You issue a 1099-NEC for the check / ACH portion only. The credit-card portion is captured by the processor's 1099-K. Track the two separately during the year.
Do I issue a 1099 to a foreign contractor?
If they're a non-U.S. person doing work entirely outside the U.S., usually no — collect Form W-8BEN instead and file no 1099. If any of the work is performed inside the U.S., the rules get complex; consult a CPA.
What if I forgot to issue a 1099 last year?
File it now. The penalty is lower the sooner you catch it, and filing late is much better than not filing.
Do I send a 1099 to my own LLC or S-corp?
No — payments to yourself from your own entity aren't 1099-able. You handle owner pay through W-2 (S-corp) or distributions / draws (LLC).
ExpenseGhost provides tax estimates and tax-ready exports. We are not a tax preparer and do not file returns. Estimates are informational — verify every number with a licensed tax professional before filing.