Pay a contractor $600 and you owe them a 1099. But which one? 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 moved to a different form. People have been mixing them up ever since.
Here's the decision tree, and what it costs when you get it wrong.
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) are exempt by default. The exception: attorney fees and medical payments always require a 1099, even to a corporation.
- LLCs taxed as a corporation are exempt. (LLCs taxed as partnerships or sole props do get 1099s.)
- Vendors paid via credit card or third-party payment network: the processor reports those on a 1099-K, not 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 avoidable pain 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 the 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 electronic delivery if they consented in advance. Emailing 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 already reports those on a 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 you a lot of February pain.
How ExpenseGhost helps
ExpenseGhost watches your bank feed all year and surfaces every vendor you've paid $600 or more, the 1099-NEC threshold. Mark the corporations exempt, track whose W-9 you've collected, and export a year-end CSV with the merchant and amount columns prefilled for your CPA. No January spreadsheet archaeology. 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 lands on 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 skip the 1099. If any of the work happens inside the U.S., the rules get complicated; ask 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.