If you’ve hired a contractor, paid a freelancer, or worked with a virtual assistant in your online business, you almost certainly have a 1099-NEC obligation — and most online business owners don’t know it.
The rules also just changed. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, raised the 1099-NEC reporting threshold from $600 to $2,000 starting with the 2026 tax year. So if you’ve been Googling this topic and getting conflicting answers, that’s why.
This guide walks you through the current rules in plain English: what a 1099-NEC is, who needs one, the new thresholds, deadlines, and exactly what to do if you’ve never issued one before.
Quick Answer: What Is a 1099-NEC?
A 1099-NEC (Nonemployee Compensation) is the IRS form you issue to any U.S.-based independent contractor — sole proprietor, single-member LLC, or partnership — that you paid $600 or more during the 2025 tax year, or $2,000 or more starting in 2026, for services rendered to your business.
It tells the IRS: “This person isn’t my employee, but I paid them this much for their work, and they need to report it as income.”
What’s Changed in 2026: The New $2,000 Threshold
Here’s the breakdown of what the OBBBA changed:
- 2025 tax year (filed early 2026): $600 threshold still applies. If you paid a contractor $600 or more in 2025, you must issue a 1099-NEC.
- 2026 tax year (filed early 2027): Threshold rises to $2,000. You only issue 1099-NECs to contractors paid $2,000 or more.
- 2027 and beyond: The $2,000 threshold will be adjusted for inflation each year.
- 1099-K (PayPal, Stripe, Venmo): The threshold reverts to $20,000 AND more than 200 transactions — the originally planned $600 threshold has been repealed.
- Backup withholding: Aligns with the new $2,000 threshold starting in 2027.
Important: Even if your contractor was paid less than $2,000, they still owe tax on that income. The threshold change affects your reporting obligation as the payer — not whether the income is taxable.
What a 1099-NEC Actually Does
The 1099-NEC reports nonemployee compensation to federal, state, and local tax authorities. It does two things:
- Tells the IRS how much you paid an independent contractor for services
- Gives the contractor the document they need to report that income on their own tax return
Independent contractors don’t get a W-2 with federal tax withheld. So the IRS uses 1099-NECs as the cross-check to make sure contractors report their income — and to make sure you, as the business, are properly tracking what you spent on contracted services.
Who Receives a 1099-NEC?
You issue a 1099-NEC to U.S.-based contractors who are structured as:
- Sole proprietors
- Single-member LLCs (default tax treatment)
- Partnerships and multi-member LLCs taxed as partnerships
You do not issue a 1099-NEC to:
- S Corporations or C Corporations (including LLCs that have elected S-Corp or C-Corp tax treatment)
- Contractors located outside the U.S. — they fill out a W-8BEN instead, which you keep on file
- Contractors paid exclusively through PayPal, Stripe, Venmo, or credit/debit cards — those payment processors issue a 1099-K if thresholds are met
- Anyone you paid for products (digital or physical) — 1099-NECs are for services, not goods
Typical 1099-NEC recipients in an online business include:
- Virtual assistants
- OBMs (online business managers)
- Bookkeepers and accountants (paid by check or ACH)
- Lawyers
- Social media managers, Pinterest managers, community managers
- Copywriters, designers, web developers
- Coaches and consultants
What You Need to Issue a 1099-NEC
Three things, every time:
- A signed W-9 from the contractor with their legal name, address, business entity type, and SSN or EIN. Unsigned W-9s are not valid.
- The total amount paid during the calendar year, broken out from any reimbursements or product purchases
- Your business’s tax ID (EIN, ideally — see note below)
Pro tip on the EIN: Whether you’re a sole proprietor, LLC, partnership, or corporation, get a free EIN directly from the IRS. It saves you from handing out your SSN to every contractor and vendor. The IRS issues EINs instantly online — if anyone is charging you for one, you’re not on the IRS site.
I personally use Yearli to e-file 1099s. It stores prior-year data, files with the IRS, and sends recipient copies. Other reputable platforms include Tax1099, Track1099, and the IRS’s own free IRIS portal.
E-filing is now required for most business owners. As of 2024, anyone filing 10 or more information returns total (1099s, W-2s, etc., aggregated) must e-file. Most online business owners hit this threshold faster than they realize.
What About Contractors Outside the U.S.?
Have them complete a W-8BEN (individual) or W-8BEN-E (entity) and keep it in your records. You don’t issue them a 1099 — the W-8BEN documents that you did your due diligence to confirm they’re not a U.S. taxpayer.
The Independent Contractor Test (Don’t Skip This)
A lot of online business owners label workers as “contractors” who legally should be employees. The IRS gets serious about this — if you fail the test, you can owe back payroll taxes plus penalties.
A worker generally qualifies as an independent contractor if they:
- Don’t supervise any of your other contractors or employees
- Set their own schedule and aren’t required to work specific hours
- Provide their own equipment, tools, and supplies
- Have control over how the work gets done, not just what gets done
If you’re dictating hours, requiring exclusivity, or treating someone as your direct report, the IRS likely considers them an employee. That means W-2, payroll taxes, workers’ comp — the whole thing.
When in doubt, run the IRS Form SS-8 test or talk to your accountant.
1099-NEC Deadlines
This is where the original advice floating around the internet is often wrong. The 1099-NEC has a single deadline for both the recipient and the IRS:
- January 31 — both the recipient copy AND the IRS copy must be postmarked or e-filed by this date
- If January 31 falls on a weekend or holiday, the deadline shifts to the next business day (for 2026 filings of 2025 forms, the deadline is February 2, 2026)
No extensions are granted automatically for 1099-NECs the way they used to be. File on time.
(Note: The February 28 deadline some sources mention only applies to paper-filed 1099-MISC and other information returns. It does NOT apply to 1099-NEC.)
State-Level 1099 Requirements
Just because the federal threshold goes up to $2,000 in 2026 doesn’t mean your state agrees.
- Massachusetts and Vermont maintain their own $600 thresholds for 1099-MISC reporting regardless of federal rules.
- Some states require separate state copies of 1099s.
- A handful of states participate in the IRS’s Combined Federal/State Filing Program, which forwards your federal filing to the state automatically — but not all do.
Check with your state department of revenue or your accountant for the rules in any state where you have payees.
What to Do If You Receive a 1099-NEC
Receiving a 1099-NEC means a client paid you $600 or more (or $2,000+ in 2026) for services — and they reported it to the IRS.
Here’s how to handle it on your tax return:
- Add each 1099-NEC you receive to your Schedule C
- On the line for “income not reported on a 1099,” enter the rest of your business income (the amount your bookkeeping shows minus the total of all 1099s received)
- Deduct your business expenses normally
Example: Your bookkeeping shows $120,875 in total business income for the year. You received three 1099-NECs: one for $5,000, one for $2,680, one for $12,575 (total: $20,255). On your Schedule C, you’d report the three 1099 amounts where the form asks, and $100,620 ($120,875 − $20,255) on the “income not reported on 1099s” line.
This way, the IRS sees the 1099s match what you reported — and your total income matches your books.
For a deeper walkthrough of receiving multiple forms, check out this post on what to do when you receive multiple 1099s.
Penalties for Not Filing 1099-NECs
Missing a 1099-NEC isn’t free. As of the IRS’s 2026 inflation-adjusted figures, penalties run from $60 to $340 per form depending on how late you file, with higher penalties for intentional disregard. Multiply that by every contractor you should have filed for, and it adds up quickly.
If you get audited and the IRS finds missing 1099s, you can also face backup withholding penalties — meaning you may owe 24% of the contractor’s payments out of your own pocket if you didn’t have a valid W-9 on file.
Frequently Asked Questions
Do I issue a 1099-NEC if I paid through PayPal or Stripe?
No. Payment platforms like PayPal, Stripe, Venmo (business), and credit/debit card processors issue Form 1099-K to the contractor if the platform’s thresholds are met. You only issue 1099-NEC for payments made by check, cash, ACH, Zelle, or direct bank transfer.
What if my contractor is an LLC?
LLCs are tricky because LLC is a legal structure, not a tax classification. Look at the W-9:
- LLC taxed as a sole proprietor or partnership: Issue a 1099-NEC
- LLC taxed as an S-Corp or C-Corp: Don’t issue a 1099-NEC
The W-9 will tell you exactly which box they checked.
What if I paid a contractor but never collected a W-9?
Collect it now. If they refuse, you’re required to begin backup withholding at 24% on all future payments and remit it to the IRS. Always collect the W-9 before you make the first payment — this is the single biggest mistake online business owners make.
Do I need to issue a 1099-NEC to my attorney?
Yes — even if your attorney’s firm is incorporated. Payments to attorneys are one of the few exceptions to the corporate exemption. Always issue a 1099-NEC for legal fees.
Does the new $2,000 threshold apply to 2025 payments?
No. The $600 threshold still applies for any payments made in 2025 (which you’ll be filing in early 2026). The $2,000 threshold applies only to payments made on or after January 1, 2026.
Can I just keep using $600 to be safe?
You can voluntarily issue 1099-NECs below the threshold — the IRS doesn’t penalize over-reporting. But you’re not required to.
Stay Compliant Without the Stress
As a business owner, 1099 compliance is your responsibility. The good news: with proper bookkeeping and a W-9 collection process built into your contractor onboarding, this becomes a one-week task in January, not a year-long source of anxiety.
If you’ve been winging it, or you’re not sure whether your past filings were correct, this is exactly the kind of cleanup work a qualified bookkeeper or accountant handles every January.
Need a deeper walkthrough — including how to issue your first batch of 1099s, what to do if you missed prior years, and how to set up a W-9 collection process — check out my course, Mastering 1099s.
This guide is for educational purposes and reflects rules as of 2026. State requirements vary. For advice specific to your business, work with a licensed tax professional.