What are the 1099-NEC filing requirements for businesses that hire contractors?
If your business paid $600 or more to an individual, sole proprietor, partnership, or LLC (taxed as a sole proprietor or partnership) for services during the calendar year, you are required to file a 1099-NEC. This applies to freelancers, independent contractors, subcontractors, and any non-employee who performed work for your business. Payments to C-corporations and S-corporations are generally exempt, though there are exceptions for legal services and a few other categories.
The filing deadline is January 31 of the following year. That date applies to both the copy you send to the contractor and the copy you file with the IRS. There is no automatic extension for the 1099-NEC the way there is for some other information returns, so missing this deadline means penalties. Late filing penalties range from $60 to $310 per form depending on how late you are, and they can add up quickly if you have multiple contractors.
The process really starts well before January. Collect a W-9 from every contractor before you make your first payment to them. The W-9 gives you their legal name, business name, address, taxpayer identification number, and entity type. Getting this information upfront saves you from chasing people down in January when they may be slow to respond. If a contractor refuses to provide a W-9, you are required to withhold 24% of their payments as backup withholding and send it to the IRS.
Throughout the year, track every payment you make to each contractor. Your accounting software should make this straightforward if expenses are categorized properly. When January comes around, you pull a report showing total payments by contractor and determine who crossed the $600 threshold. Only cash, check, and direct deposit payments count toward the $600. Payments made through third-party processors like PayPal, Venmo for business, or credit cards are reported by those platforms on a 1099-K instead, so you do not include those amounts on your 1099-NEC.
Electronic filing is now required if you are filing 10 or more information returns of any type combined. The IRS lowered this threshold recently, so many small businesses that used to paper-file now need to submit electronically through the IRS IRIS portal or through their accounting software.
A common mistake is forgetting about one-off contractors. You hired someone to pressure wash the building in March and a consultant for a one-day project in September. If either of those payments hit $600, they need a 1099-NEC. Keeping your books organized throughout the year with a QuickBooks ProAdvisor in Long Beach makes it much easier to pull accurate reports when filing season arrives.
If this feels like a lot to manage, especially with multiple contractors, consider getting help with 1099 preparation. The cost of professional filing is small compared to the penalties for doing it wrong or doing it late. And once you have a clean process in place, each year gets easier.
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