What is a 1099-NEC Form and How to File It For Contractors, Freelancers, and More
Freelancers and independent contractors are reshaping the U.S. workforce. In 2023, over 64 million Americans embraced freelance work, bringing flexibility and expertise to businesses across industries. But as a business owner, working with freelancers comes with its own set of responsibilities — especially when tax season rolls around.
If you’ve paid a freelancer or contractor $600 or more this year, the IRS requires you to file a 1099-NEC form by no later than January 31st of the following year. Miss this deadline, and you could face penalties that add up fast.
But navigating tax forms doesn’t have to be stressful. In this article, we’ll break down everything you need to know about the 1099-NEC: what it is, how to file it correctly, and why getting it right matters. Whether you’re a seasoned business owner or new to hiring contractors, this guide will help you stay compliant and keep your finances in order.
What is a 1099-NEC form?
Form 1099-NEC (Nonemployee Compensation) reports money paid to freelancers, independent contractors, and other nonemployee service providers.
The IRS requires the form for each person paid more than $600 in compensation by a business during a tax year. (People who don’t meet the $600 threshold for a 1099-NEC form must still report the money on their tax return, but you don’t have to issue them a form.)
Businesses that must file 1099-NEC forms have until Jan. 31 of the next year to do so. So, for the tax year ending on Dec. 31, 2024, you must file the forms by Jan. 31, 2025, to avoid penalties. The IRS gets a copy of the form, as does the person you paid.
1099-NEC vs. 1099-MISC vs. W2
As a business owner, you may already issue W-2 forms for your employees, but 1099 forms work differently. To make it even more confusing, there are two types of 1099s to choose from. Here, we break down the differences for each form.
1099-NEC
The 1099-NEC form records annual payments totaling $600 or more to nonemployees like freelance writers, babysitters, or an individual landscaper. The payments could be for products or services they provided to your business, whether you paid in cash, check, or electronic payment.
The NEC stands for “nonemployee compensation.” You only use this form if you don’t pay the person as an employee of your company.
1099-MISC
The 1099-MISC (Miscellaneous Income) also records payments but does not include employee or nonemployee compensation.
Examples of this kind of compensation include rent, book royalties, fishing boat proceeds, or the value of prizes won in a sweepstakes. The 1099-MISC is issued for payments totaling $600 or higher, similar to the 1099-NEC.
If you have any further questions on whether to file a 1099-MISC or a 1099-NEC, check out this IRS guide on the difference.
W-2
Businesses file a W-2 form for each company employee they pay.
This form includes all kinds of payments and taxable benefits received by that employee, including wages, tips, salaries, and bonuses. Plus, the W-2 also has a breakdown of taxes withheld, outlining how much was withheld from the paycheck over the course of the year for Social Security and Medicare taxes.
1099-NEC: The new 1099-MISC?
If you’ve worked with freelancers or independent contractors for a long time, you may have noticed a shift in the forms used to report income. Before 2020, companies put the nonemployee compensation in Box 7 of the 1099-MISC. This form is now reserved for prizes, rents, and other miscellaneous payments.
Independent contractors should now have their income reported on the 1099-NEC only — this form has been designed to clarify the different types of income and streamline reporting.
If you work with an independent contractor and they ask for their 1099-MISC, remind them of the change and let them know they’ll receive a 1099-NEC instead.
Who needs to file a 1099-NEC form?
Any business or individual that pays a nonemployee professional $600 or more in a tax year must file this form. You have until Jan. 31 of the following year to submit it to the IRS and the person you paid.
You can submit this form directly through the IRS system or have a tax professional do it for you.
Some situations that would require a 1099-NEC include:
- An agency that hires a graphic designer to create a website
- A business that pays a consultant to give them marketing advice each month
- A company that has all of its writing done by part-time freelancers
- A sole proprietorship that pays an independent contractor to manage social media accounts
Who is a 1099-NEC form for?
The 1099-NEC form allows the IRS to keep track of income generated by people who are not considered employees, such as:
- Freelancers (writers, editors, marketing support, etc.)
- Independent contractors (consultants, landscapers, transportation, etc.)
- Professionals who charge fees for services (attorneys, accountants, consultants, etc.)
- Salespeople who didn’t work as employees and earned commissions
- Affiliates
Alternatively, the 1099-MISC is filed by those who are paid more than $10 in royalties, some commercial landlords, and winners of prizes valuing $600 or more.
What information do you need for a 1099-NEC?
While the 1099-NEC is a very small form — it takes up just half a page — it contains essential tax filing information. Here is a list of the information you’ll need to collect to fill it out properly.
Payer information
Include the following business information in the payer section:
- Business or personal name used for business tax filings
- Current address
- Telephone number
- Social Security Number (SSN) or Employer Identification Number (EIN)
Note: You can still use an EIN for tax forms even if you don’t employ anyone. In fact, it may be preferable to keep personal and business tax matters separate. Depending on your business structure, the IRS may require you to use an EIN instead of your SSN.
Recipient information
In the recipient section, include the following information for the person to whom you paid more than $600 in a given tax year:
- Recipient's name
- Current address
- Social Security Number (SSN) or Employer Identification Number (EIN)
Independent contractors operating as a business may use an EIN in place of their SSN. Ask the provider which they prefer so you know for sure.
Payment information
Use accounting software or your bookkeeping professional to keep track of money paid throughout the year. You’ll need:
- The total amount paid for nonemployee compensation per person
- Withheld federal income tax (not common)
- Account number (if applicable when providing more than one 1099-NEC to the same person)
State filing information
Some states require reporting. If the recipient lives in one of these states, get the state tax identifier and keep track of any state-specific earnings. (Recipients can live in more than one state within a year, so note each.)
How to file a 1099-NEC
When you onboard a new independent contractor, collect the correct tax information right away using a W-9 form.
Throughout the year, keep a running total of the money you’ve paid to them in the applicable tax year to make filing easier.
Note: If the total doesn’t reach $600, you don’t have to file a form for that year. However, you may still want to contact the independent contractor or freelancer so they’re not waiting for a form they will never receive.
When filing the form, input the following information into the correct box listed below.
- The recipient’s name, address, SSN or EIN, and account number (if applicable) go into the named fields.
- The total compensation for the year goes into Box 1.
- If you directly sold the recipient more than $5000 of consumer products for the purpose of resale, check Box 2 and put the value in Box 3.
- Any backup federal withholding goes into Box 4.
- Put any state tax withheld in Box 5, with the state identifier in Box 6.
- Total state income goes into Box 7.
Now, review the form to ensure the data matches your records and there are no errors.
Next, provide the independent contractor with a copy of each form (Copy B and Copy 2) by Jan. 31 of the year following the tax year.
Copy A goes to the IRS by Jan. 31, as well. You may send it via mail, but you must include Form 1096 for any paper submissions. Most companies prefer to send via electronic means, such as accounting or payroll software, to ensure it arrives on time. The IRS requires any company issuing more than ten 1099-NECs to file electronically.
You’ll also send Copy 1 to your state tax department. The instructions for this vary depending on your state’s rules and procedures.
Keep a record of everything as a paper and digital copy, if possible. You may need it if a form gets lost in the mail and the independent contractor needs a new one. The IRS requires a business to keep a copy for potential future audits for at least four years.
Penalties for not filing a timely 1099-NEC form
Take the rules around sending out 1099-NEC forms seriously — failing to do so may cost you. Currently, the IRS charges penalties for each late or missing form, and these fees grow over time. Penalties may also accrue interest until fully paid off.
Current late penalties for 2025 include:
- Less than 30 days: $60 per form
- More than 30 days late but filed by Aug. 1: $130 per form
- Filed after Aug. 1 or never filed: $330 per form
However, if the IRS believes you are intentionally withholding forms, they can fine you $660 per form.
Tips for issuing 1099-NEC forms
Not providing a timely 1099-NEC form can strain relationships with your contractors and even delay their tax filings. To avoid this situation (and the penalties for late forms), follow these suggestions.
- Keep detailed records. Track what you pay each contractor, as discrepancies can cause issues and result in the contractor being audited or fined. Take your time to ensure each detail on the form is correct.
- Ask for recipient information early. Have new contractors fill out the W-9: Request for Taxpayer Identification Number and Certification before their very first payment and as part of your onboarding process.
- Keep a checklist. Every contractor with payments of $600 should be included, and you can verify it with your accountant or tax preparer.
- Set deadlines. Know when forms are due, and schedule reminders well in advance of the IRS deadlines. Verify info with freelancers before tax season, so you’re ahead of the game.
- Stay on top of tax law. The IRS changes the rules… a lot. Subscribe to IRS alerts for the latest in business tax law, and consult a tax professional if you have concerns about recent changes.
Don’t be afraid to ask for help come tax time
Taxes aren’t usually a favorite activity for business owners. It’s OK to ask for help. By giving the job to a team of professionals, like Digits, you avoid the unpleasant task of filling out forms and filing them on time.
If you do want to handle this yourself — and you issue several 1099-NEC forms each year — you’ll likely need to send them as a batch through the IRS system. If you opt for mail, you’ll have to fill out extra forms — and hope the mail service doesn’t let you down.
Just remember that missing forms for your freelancers can cost your company both time and money.
Hiring a professional removes the burden of these fines while leaving your tax paperwork in capable hands.
Many companies already use accounting or finance solutions to streamline payments and keep tabs on how much they’ve paid their freelancers. Incorporate tax preparation into this workflow and save even more time.
Schedule a call with Digits to learn how you can be more prepared for 1099-NEC and other forms come tax time.
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