For payments made during 2026, a business generally files Form 1099-NEC for a non-employee it paid $2,000 or more for services in the course of its trade or business. That threshold was $600 for payments made in 2025. The form for 2026 payments goes to both the contractor and the IRS by January 31, and because January 31, 2027 is a Sunday, the deadline moves to Monday, February 1, 2027. This guide explains who needs a form, what is excluded, and the steps to take in December so January is not a scramble.
What Changed for 2026 Payments
The IRS’s Publication 15 for 2026 states the change directly: Form 1099-NEC is required for payments of “$600 or more made in 2025 ($2,000 or more for payments made in 2026).” The Instructions for Forms 1099-MISC and 1099-NEC add that for tax years beginning after 2025 the minimum reporting threshold for these payments increased to $2,000, and that it may be adjusted for inflation starting in calendar year 2027.
In practice that means two different rules are in play this winter:
| Payments made in | Reporting threshold per payee | Forms due |
|---|---|---|
| 2025 (already filed in early 2026) | $600 | Early 2026 |
| 2026 | $2,000 | February 1, 2027 (January 31 falls on a Sunday) |
| 2027 onward | $2,000, possibly adjusted for inflation | Check the current instructions |
Fewer small contractors will cross the line, so some businesses will send noticeably fewer forms. That does not change whether the contractor owes tax on the income; it only changes your reporting obligation.
Who Gets a 1099-NEC: The Four Conditions
According to the IRS instructions, you generally report a payment as nonemployee compensation when all four of these apply:
- You paid someone who is not your employee.
- The payment was for services performed in the course of your trade or business.
- You paid an individual, partnership or estate, or in some cases a corporation.
- Your total payments to that payee for the year were $2,000 or more.
The first condition is the one that causes real trouble. If someone you have been treating as a contractor actually works like an employee, the right answer is a Form W-2, not a 1099-NEC. Our year-end employee or contractor review walks through the IRS and Department of Labor tests before you file anything.
What You Generally Do Not Report on a 1099-NEC
The IRS instructions list several exclusions that small businesses often miss:
- Payments to corporations. Generally exempt, including an LLC treated as a C or S corporation. The big exception is legal services: payments to attorneys of $2,000 or more are still reported.
- Card and payment-network payments. Payments made with a credit card or payment card, and certain third-party network transactions, are not reported on Form 1099-NEC or 1099-MISC. The payment settlement entity reports them on Form 1099-K instead.
- Merchandise and similar items. Payments for merchandise, freight, storage and similar items are excluded.
- Personal payments. Paying a contractor to work on your own home, as opposed to your business premises, is a personal payment and not reportable.
- Employees. Wages, bonuses and other pay to employees go on Form W-2.
Check the full instructions for anything unusual. Rents, prizes and some other payments are reported on Form 1099-MISC rather than 1099-NEC.
A December Checklist
1. Pull a list of every non-employee you paid
Export vendor payments for the calendar year from your accounting system. Separate them by payment method, because card and payment-app payments are handled through Form 1099-K.
2. Total by payee and flag anyone at or above $2,000
Remember the threshold applies per payee for the year. Three invoices of $800 to the same freelancer add up to $2,400.
3. Confirm you have a current Form W-9
You need each payee’s legal name, tax classification and taxpayer identification number. Collecting a W-9 before the first payment is far easier than chasing one in January. The cfwork.com checklist of paperwork to collect before you pay a freelancer is a handy template for setting this up for 2027.
4. Identify corporations and attorneys
The W-9 tax classification box tells you whether the payee is a corporation. Mark attorneys separately so their legal fees are reported even if they are incorporated.
5. Re-check the classification of regular contractors
Anyone who worked set hours, used your equipment and did the same job as your employees deserves a closer look before you file.
6. Choose how you will file
Payroll and accounting software can usually prepare and e-file information returns. The IRS also accepts electronic filing directly. Whatever route you choose, test it in early January rather than on the deadline.
Contractors Who Came Through a Staffing Agency
If a staffing agency supplied the worker and paid them as its own employee, the agency issues the W-2 and you do not file a 1099-NEC for that person. Your payment to the agency is a business payment, and agencies are often corporations, which are generally exempt from 1099-NEC reporting. Our explainer on W-2 agency employment versus contractor work covers how the arrangement looks from the worker’s side.
Penalties and Corrections
The IRS charges penalties for late, missing or incorrect information returns, and the amount depends on how late the correction is made. If you discover a mistake after filing, file a corrected form promptly; the instructions explain how. A business that is unsure about the edge cases, such as payments to an LLC, an attorney or a foreign contractor, should get help before the deadline. In California, taxprosofca.com explains how to find a tax professional who works with small businesses and how to check their credentials.
Planning for Next Year
The new threshold is a good moment to tidy the process. Our New Year hiring checklist covers the people side of January planning; for contractors, add these habits:
- Collect a W-9 before the first payment, every time.
- Record each vendor’s tax classification in your accounting system.
- Run a running total report each quarter so you know who is approaching the threshold.
- Keep a short note on file for each regular contractor explaining why they are a contractor.
Frequently Asked Questions
What is the 1099-NEC threshold for 2026?
$2,000 per payee for payments made in 2026, up from $600 for payments made in 2025. The IRS says the threshold may be adjusted for inflation starting in 2027.
When is the 1099-NEC for 2026 payments due?
The form is due to recipients and to the IRS on January 31. When that date falls on a weekend or legal holiday, the deadline moves to the next business day. January 31, 2027 is a Sunday, so the deadline is Monday, February 1, 2027.
Do I send a 1099-NEC to an LLC?
It depends on how the LLC is taxed. An LLC treated as a C or S corporation is generally exempt, except for legal services. The corporate exemption in the IRS instructions is limited to LLCs treated as corporations, so an LLC taxed another way does not get it and is reportable if the other conditions are met. The payee’s W-9 tells you which applies.
I paid a contractor through a payment app. Do I file a 1099-NEC?
Payments made by credit card, payment card and certain third-party network transactions are not reported on Form 1099-NEC. The payment settlement entity reports them on Form 1099-K. Check how the app processed the payment.
If I paid someone $1,500 in 2026, do they still owe tax?
Yes. The reporting threshold controls whether you file a form, not whether the income is taxable. The contractor is still responsible for reporting it.