If you paid a contractor $600 or more during the year for services, you generally need to send them a 1099-NEC. This applies to individuals, sole proprietors, partnerships, and LLCs that are taxed as sole proprietors or partnerships. It does not apply to payments made to corporations, whether C-corps or S-corps.

The $600 threshold is per contractor, not per payment. If you paid someone $200 in March, $150 in July, and $300 in October, that totals $650 and triggers a 1099 requirement. Only payments for services count toward this threshold. If you bought materials or products from a vendor, those payments don’t require a 1099.

You need to file the 1099-NEC with the IRS and send a copy to the contractor by January 31. Missing that deadline triggers penalties starting at $60 per form for filings up to 30 days late, increasing from there. The IRS does pay attention to these filings, especially for businesses that clearly work with contractors but aren’t reporting them.

The key to a smooth January is collecting W-9 forms before you pay contractors, not after. The W-9 gives you their legal name, tax identification number, and business structure. Without it, you don’t know if they’re incorporated and you don’t have the information needed to file. Chasing down contractors in January for this paperwork wastes time and creates unnecessary stress. Many business owners who use bookkeeping for service based businesses and nonprofits build W-9 collection into their vendor onboarding process so everything is ready at year end.

Common situations that require a 1099-NEC include paying a freelance designer, an IT consultant, a subcontractor on a job, or an attorney for legal services. Situations that don’t require one include paying an incorporated business, purchasing physical products, or paying through credit card or platforms like PayPal. Those payment processors handle their own reporting through 1099-K forms.

If you’re not sure about a particular vendor, check their W-9. If it shows LLC with the C or S corporation box checked, you don’t need to issue a 1099. If they’re an individual, partnership, or single-member LLC, you do.

If tracking this feels like too much to manage yourself, 1099 preparation services can handle the filing for you. The cost of getting it done right is usually less than the penalties for getting it wrong.