1099 Reporting Requirements: When to Issue 1099-NEC and 1099-MISC to Contractors and Vendors
Businesses that pay independent contractors, rent, royalties, or certain other types of income must report those payments to the IRS on Form 1099. The two most common forms are 1099-NEC (Non-Employee Compensation) for contractor payments and 1099-MISC (Miscellaneous Income) for rent, royalties, and other specified payments. Failure to file results in penalties that increase with how late the filing is.
Form 1099-NEC (Non-Employee Compensation):
- Who gets one: Independent contractors, freelancers, and self-employed individuals paid $600 or more during the year for services performed in the course of the payer’s trade or business
- What to report: Total payments for services (box 1)
- When to file: January 31 (to the IRS and the recipient)
- Requires a W-9: Collect Form W-9 from each contractor BEFORE making the first payment (to get their name, address, SSN or EIN)
- Doesn’t apply to: Payments to corporations (C-Corps and S-Corps, with exceptions for legal and medical payments), payments for merchandise/goods, payments via credit card/PayPal/Venmo (those are reported by the payment processor on 1099-K)
Form 1099-MISC (Miscellaneous Income):
- Box 1: Rent paid to a landlord ($600+ for business rent, not residential)
- Box 2: Royalties ($10+)
- Box 3: Other income (prizes, awards, fishing boat proceeds)
- Box 10: Gross proceeds paid to an attorney ($600+, even if the attorney is a corporation)
- When to file: February 28 (paper) or March 31 (electronic) to the IRS; January 31 to the recipient
Penalties for not filing (per form):
- Filed within 30 days of deadline: $60
- Filed after 30 days but by August 1: $130
- Filed after August 1 or not filed: $330
- Intentional disregard: $660 (no maximum)
- Small business exception: reduced penalties for businesses with average annual gross receipts of $5 million or less
What are the common mistakes?
Mistake 1: Not collecting W-9s upfront. A contractor who refuses to provide a W-9 is subject to backup withholding (24% of all payments must be withheld by the payer and remitted to the IRS). Most businesses do not realize this until year-end, when they can’t reach the contractor.
Mistake 2: Issuing 1099-NEC to corporations. Payments to C-Corps and S-Corps are generally exempt from 1099 reporting. Exception: payments for legal services and medical/health care services must be reported regardless of entity type.
Mistake 3: Reporting credit card/PayPal payments on 1099-NEC. Payments made via credit card, debit card, or third-party payment networks (PayPal, Venmo, Stripe, Square) are reported by the payment processor on Form 1099-K. The payer should NOT also report these payments on 1099-NEC (that would be double-reporting).
Mistake 4: Not reporting rent. If the business pays $600+ in rent to an individual landlord (not a corporation), Form 1099-MISC is required. Many businesses forget this because they think 1099s are only for contractor payments.
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Yarik Yarosh, CPA. "1099 Reporting Requirements: When to Issue 1099-NEC and 1099-MISC to Contractors and Vendors." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-1099-reporting-requirements
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.