1099 Filing Requirements for Small Businesses: Who Gets a 1099 and When

Every business that pays $2,000 or more (for payments made in 2026; $600 for 2025) to an unincorporated service provider (an independent contractor, freelancer, or sole proprietor) during a calendar year must issue a 1099-NEC form. This is a filing obligation on the payer (the business), not the payee (the contractor). The business files the 1099-NEC with the IRS and provides a copy to the contractor by January 31 of the following year. Failure to file carries penalties that increase with the delay.

How do you know if a contractor needs a 1099?

The process starts with Form W-9. For current guidance, see IRS 1099 information returns. When the business hires a contractor, the business should collect a completed W-9 (Request for Taxpayer Identification Number and Certification) before the first payment. The W-9 provides the contractor’s name, address, TIN (Social Security Number or EIN), and entity type. The entity type determines whether a 1099 is required:

• Individual / sole proprietor / single-member LLC: 1099 required if payments total $2,000 or more ($600 for 2025 payments).
• Partnership / multi-member LLC: 1099 required if payments total $2,000 or more ($600 for 2025 payments).
• C corporation: 1099 NOT required (with exceptions for medical/health payments and attorney fees).
• S corporation: 1099 NOT required (same exceptions).

If the contractor refuses to provide a W-9, the business must withhold 24% of payments (backup withholding) and report the payments on 1099-NEC.

What payments require a 1099?

Services that require 1099-NEC:

• Freelance design, writing, development
• Subcontractor labor (construction, cleaning, landscaping crews)
• Professional services (attorney fees, accounting fees, consulting)
• Commission payments to non-employee salespeople
• Day-of coordinators, second shooters, contract workers

Payments that don’t require 1099-NEC:

• Payments to corporations (C-Corp or S-Corp)
• Payments for merchandise or products (inventory, supplies)
• Payments for rent to a real estate agent or property manager (these go on 1099-MISC)
• Payments made via credit card, PayPal, Venmo, or other third-party payment processors (the processor issues the 1099-K)
• Wages to W-2 employees (reported on W-2)

The credit card / payment processor exception is important: if the business pays a contractor via credit card, PayPal, or Venmo (goods and services), the business doesn’t issue a 1099-NEC for that contractor. The payment processor issues a 1099-K instead. However, if the business pays the same contractor via check, ACH, or cash, the business MUST issue a 1099-NEC.

Should I use Form W-9 or W-8BEN when hiring a contractor?

Use Form W-9 for US persons (citizens, residents, and domestic entities) and Form W-8BEN for foreign individuals or W-8BEN-E for foreign entities. The W-9 collects the contractor’s taxpayer identification number for 1099-NEC reporting. The W-8BEN certifies foreign status and may claim a reduced withholding rate under a tax treaty. Collect the form before the first payment. If a contractor does not provide a W-9, backup withholding of 24% applies to all payments. For foreign contractors, you withhold 30% (or the treaty rate) and report on Form 1042-S instead of 1099-NEC.

Related guides:

• 1099 Reporting Requirements: Who Gets a 1099, When to File, and Penalties for Late Filing

• Form 1099 Filing Requirements: Who Gets a 1099 and When (Complete Guide)

How do missing 1099s raise the cost of a misclassified worker?

Skipping a contractor’s 1099 costs more than the filing penalty if that contractor turns out to be an employee. Under IRC 3509, the income tax and employee FICA you didn’t withhold are figured at 1.5% of wages and 20% of the normal employee FICA. If you didn’t file the required 1099 and had no reasonable cause, those rates rise to 3% and 40%.

Missing 1099s also close the two main exits. Section 530 relief isn’t available for any worker and year where a required 1099 wasn’t filed, and the Voluntary Classification Settlement Program requires all required 1099s for the workers for the previous three years. The employer’s own 7.65% FICA and FUTA are owed either way.

Only contractors paid at or above the threshold need a 1099: $600 for payments made in 2025, and $2,000 for payments made in 2026. Paying someone less than that doesn’t count against you under Section 530.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.