Form 1099-NEC

How Form 1099-NEC works

Form 1099-NEC reports nonemployee compensation: money a business pays someone who isn’t its employee for services. In construction, that usually means subcontractors and independent tradespeople. The business that paid files the form with the IRS and sends a copy to the person it paid, who uses it to report the income.

Whether you need to file depends on four things: whether you paid in the course of your trade or business, whether the payment was for services, whether the payee is a type that gets a 1099, and whether your total payments to that payee for the year reached the threshold. For payments made in 2026 and later, the threshold is $2,000 per payee for the calendar year; before that it was $600.

The year is based on when you paid, not when the work was done or invoiced. A December job paid in January counts toward the next year’s total.

To fill out the form you need the payee’s legal name, address and taxpayer identification number, which you get from Form W-9. If a payee doesn’t provide a correct taxpayer ID, you may have to withhold federal income tax from their payments, called backup withholding, at 24%. The form is due to the payee and to the IRS by January 31 of the year after you paid, or the next business day if that date falls on a weekend or legal holiday.

Form 1099-NEC compared with related forms

Several IRS forms report payments, and they’re easy to mix up. The difference is what the payment was for and how it was made.

Payments to corporations generally don’t need a 1099-NEC, though there are exceptions, such as payments to attorneys. Payments made by credit card or through a third-party payment network are reported by the payment company on Form 1099-K, so they stay off the 1099-NEC. A payment by check or by direct bank transfer from your own account does count.

Why Form 1099-NEC matters

For contractors who hire subs

Filing correct 1099-NECs is part of paying subs. Missing or late forms can bring IRS penalties, and the IRS instructions list the current amounts. Chasing W-9s and payment totals in January is slow work, and a sub with no valid taxpayer ID on file can create backup withholding obligations for you.

For subcontractors

If you’re the sub, a 1099-NEC shows what a client reported paying you. The income is reportable whether or not you get a form, and if you’re self-employed your net earnings are subject to self-employment tax. Compare each form with your own records and ask the client to correct any mistake.

For homeowners

Homeowners paying a contractor for work on their own home generally don’t file a 1099-NEC, because the payment isn’t made in the course of a trade or business. A landlord or business owner paying for work on a business property is in a different position and should check the IRS instructions.

How to handle Form 1099-NEC step by step

1. Collect a signed W-9 from every sub and independent contractor before the first payment.
2. Note each payee’s tax classification from the W-9, so you know who is a corporation and who isn’t.
3. Record every payment by payee, with the date, the amount and the method: check, bank transfer, card or payment app.
4. After December 31, total each payee’s payments for the year, leaving out card and payment network payments and payments for materials alone.
5. Prepare a 1099-NEC for each payee who met the $2,000 threshold, and check names and taxpayer IDs against the W-9.
6. Send copies to payees and file with the IRS by January 31, and check whether your state requires its own filing.
7. Keep copies, and file a corrected form if you find a mistake later.

Payments that mix labor and materials, payments to LLCs taxed in different ways, and payments to attorneys each have their own rules. The IRS instructions for Forms 1099-MISC and 1099-NEC cover them, and a tax professional can help with the edge cases.

1099-NEC example for a remodeling business

Say a remodeling company, a sole proprietorship, made the payments below in 2026. It collected a W-9 from each payee before paying.

The painter was paid $2,600 + $1,200 = $3,800, but only the $2,600 paid by check goes on the 1099-NEC. The $1,200 paid by card is left to the card processor’s Form 1099-K reporting. The check payments alone are over $2,000, so a form is required.

The tile setter fell under the threshold. Had the company paid the tile setter another $300 in December, the total would have been $1,750 + $300 = $2,050, and a form would be needed. As it is, the company files two 1099-NECs, for $8,400 and $2,600, by the January 31 deadline.

These figures are only there to show how the rules apply. When a case is less clear, check the IRS instructions for Forms 1099-MISC and 1099-NEC.

Common Form 1099-NEC mistakes

• Paying a sub before getting a W-9, then chasing it in January.
• Using the old $600 threshold for 2026 payments, or the new $2,000 threshold for earlier years.
• Including payments made by card or through a payment network, which the payment company reports.
• Filing for corporations that don’t need a form, or skipping attorneys who do.
• Counting payments by invoice date instead of the date paid.
• Missing the January 31 deadline for either the IRS copy or the payee’s copy.
• Treating a 1099 as proof someone is a subcontractor. Worker classification depends on how the work is controlled, not on which form is filed.

Most 1099 problems start with missing W-9s and incomplete payment records. Get the W-9 up front, record how each payment was made, and January becomes a short report instead of a search.