As your freelancing business grows, you may hire other freelancers or contractors to help. When you do, you have tax obligations—you must issue 1099-NEC forms to contractors you pay $600 or more. Understanding when to issue 1099s, how to file them, and what the penalties are for not filing is critical for staying compliant. This comprehensive guide explains everything freelancers need to know about hiring contractors and 1099 rules in 2026.
Table of Contents
When You Must Issue 1099-NEC
Understanding the requirement:
The General Rule
You must issue 1099-NEC if:
- You paid a contractor $600 or more during the year
- Payment was for services (not products)
- Contractor is not a corporation (with exceptions)
Most freelancers: Will need to issue 1099s if they hire other freelancers
The $600 Threshold
Threshold: $600 in payments during the year
This means:
- Pay contractor $500: No 1099 needed
- Pay contractor $600: Must issue 1099
- Pay contractor $5,000: Must issue 1099
Key: Based on total payments during the year, not per payment
Who Gets a 1099-NEC
Understanding who qualifies:
Contractors Who Get 1099-NEC
You must issue 1099-NEC to:
- Independent contractors (freelancers you hire)
- Sole proprietors
- LLCs (single-member, taxed as sole proprietorship)
- Partnerships
- Anyone you pay $600+ for services (who is not a corporation)
Who Doesn't Get 1099-NEC
You don't issue 1099-NEC to:
- Corporations (C-Corps and S-Corps) - with limited exceptions
- Employees (they get W-2, not 1099)
- Yourself (you don't issue yourself a 1099)
- Businesses that provided products only (not services)
The Corporation Exception
Corporations usually don't get 1099s, but there are exceptions:
- Medical/healthcare corporations: Must get 1099
- Attorneys: Must get 1099 (even if corporation)
- Check with tax professional if unsure
Most corporations: Don't need 1099
The $600 Threshold
Understanding the threshold:
How It Works
Threshold: $600 in payments during the calendar year
Calculation: Add up all payments to same contractor during the year
Example:
- January: Paid contractor $200
- March: Paid contractor $300
- June: Paid contractor $150
- Total: $650 → Must issue 1099 (exceeds $600)
Multiple Payments
If you pay contractor multiple times:
- Add up all payments
- If total exceeds $600: Issue 1099
- If total is under $600: No 1099 needed
Example: Paid contractor 10 times, $100 each = $1,000 total
- Must issue 1099 (exceeds $600)
How to Issue 1099-NEC Forms
Here's the process:
Step 1: Get Contractor Information
You need:
- Name (or business name)
- Address
- Social Security Number (SSN) or Employer Identification Number (EIN)
How to get: Ask contractor to fill out Form W-9 (Request for Taxpayer Identification Number)
When: Before first payment (or early in relationship)
Step 2: Track Payments
Keep records of:
- All payments to each contractor
- Dates of payments
- Amounts
- Purpose (what services were provided)
Why: Need to report total on 1099-NEC
Step 3: Prepare 1099-NEC Forms
Get forms:
- Order from IRS (free)
- Or use tax software/service
- Or use online service
Fill out:
- Payer information (your business)
- Recipient information (contractor)
- Total payments (Box 1)
Step 4: Send to Contractor
Deadline: January 31 of following year
Send: Copy B to contractor (they need it for their taxes)
Method: Mail or electronic (if contractor agrees)
Step 5: File with IRS
Deadline: January 31 of following year
File: Copy A with IRS
Method:
- E-file (recommended)
- Or mail (paper filing)
Form: 1096 (transmittal form) if mailing paper copies
1099-NEC Filing Deadlines
Understanding the deadlines:
Deadline for Contractors
Send 1099-NEC to contractor: January 31 of following year
Example: For 2026 payments, send by January 31, 2027
Important: Contractor needs this for their tax return
Deadline for IRS
File 1099-NEC with IRS: January 31 of following year
Example: For 2026 payments, file with IRS by January 31, 2027
Same deadline: Both contractor copy and IRS copy due January 31
What If You Miss the Deadline?
Penalties: For late filing (see penalties section)
Still must file: Even if late, you must still file
Best: File on time (avoid penalties)
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Penalties for Not Filing
Understanding the consequences:
Penalty Amounts
Late filing penalties (2026):
- Up to 30 days late: $60 per form
- 31 days to August 1: $120 per form
- After August 1: $310 per form
- Intentional disregard: $630 per form (minimum)
Plus: Interest on penalties
Real Penalty Example
Scenario: Should have filed 5 forms, filed 60 days late
Penalty: 5 forms × $120 = $600
Plus: Interest on $600
Cost of mistake: $600+ (just for being late)
What If You Don't File at All?
Penalties continue to accrue:
- Maximum: $310 per form (if very late)
- Intentional disregard: $630 per form (minimum)
Plus: IRS may disallow deduction for contractor payments (if you can't prove you paid them)
Don't skip filing: Always file, even if late
Getting Contractor Information
This is critical:
Form W-9
Use Form W-9 to get contractor information:
- Name
- Business name (if applicable)
- Address
- SSN or EIN
- Tax classification
When to get: Before first payment (or early in relationship)
Why: Need this information to issue 1099-NEC
What If Contractor Won't Provide Information?
Options:
- Don't pay until you get W-9
- Withhold 24% backup withholding (if no W-9)
- Get W-9 before paying (best practice)
Don't pay without W-9: You'll need it for 1099 filing
Backup Withholding
If contractor doesn't provide W-9:
- You must withhold 24% of payments
- Send to IRS
- Complex: Avoid this by getting W-9 upfront
Best practice: Get W-9 before first payment
Real Examples and Scenarios
Let's work through scenarios:
Example 1: One Contractor, Over Threshold
Scenario:
- Hired freelance designer
- Paid $5,000 during year
- Got W-9 before payment
Action:
- Issue 1099-NEC by January 31
- Report $5,000 in Box 1
- Send copy to contractor, file copy with IRS
Example 2: Multiple Contractors
Scenario:
- Hired 3 freelancers
- Paid each: $2,000, $800, $400
- Got W-9s from all
Action:
- Issue 1099 to first two ($2,000 and $800 - both over $600)
- Don't issue to third ($400 - under $600 threshold)
Example 3: Same Contractor, Multiple Payments
Scenario:
- Hired contractor for multiple projects
- Paid: $200, $300, $150, $100 (total $750)
- Got W-9
Action:
- Add all payments: $750
- Issue 1099 (exceeds $600 threshold)
- Report $750 in Box 1
Common Mistakes to Avoid
Learn from others' mistakes:
Mistake #1: Not Issuing 1099s
The problem: You pay contractors but don't issue 1099s
The solution: Issue 1099-NEC to all contractors paid $600+ (penalties for not filing)
Mistake #2: Not Getting W-9s
The problem: You pay contractors but don't get their SSN/EIN, can't issue 1099
The solution: Get W-9 before first payment (need information for 1099)
Mistake #3: Missing Deadline
The problem: You issue 1099s but after January 31 deadline
The solution: Mark deadline on calendar, file on time (avoid penalties)
Mistake #4: Issuing to Corporations
The problem: You issue 1099s to corporations (usually not required)
The solution: Understand who needs 1099 (usually not corporations, with exceptions)
Frequently Asked Questions
Do I Need to Issue 1099 to Corporations?
Usually no. Corporations (C-Corps and S-Corps) usually don't need 1099s. Exceptions: Medical/healthcare corporations, attorneys.
What If I Can't Get Contractor's SSN?
Options:
- Don't pay until you get it
- Withhold 24% backup withholding
- Get W-9 before paying (best)
Do I Issue 1099 to Employees?
No. Employees get W-2, not 1099. Only issue 1099 to independent contractors.
What If Contractor Is Under $600?
No 1099 needed. Only issue if payments total $600+ during the year.
Can I E-File 1099s?
Yes. E-filing is recommended (faster, easier, less errors). Many services available.
Bottom Line: Your 1099 Compliance Plan
Here's your plan:
Immediate Actions
- Get W-9 from all contractors (before first payment)
- Track all payments (to each contractor)
- Determine who needs 1099 ($600+ threshold)
- Order 1099-NEC forms (or use service)
- Mark January 31 deadline (critical date)
Ongoing Actions
- Get W-9 before paying (need information for 1099)
- Track payments (add up totals for each contractor)
- File on time (January 31 deadline)
- Keep records (W-9s, payment records)
Key Takeaways
✅ Issue 1099-NEC if you pay contractor $600+ (for services, during the year)
✅ Get W-9 before paying (need SSN/EIN for 1099)
✅ File by January 31 (both contractor copy and IRS copy)
✅ Penalties for late filing ($60-$630 per form, depending on how late)
✅ Corporations usually don't need 1099 (with limited exceptions)
✅ Track all payments (add up to see if exceeds $600 threshold)
Final Thought
Issuing 1099-NEC forms is a compliance requirement when you hire contractors. The key is getting W-9s upfront, tracking payments, and filing 1099s on time (January 31). Don't skip this—penalties for not filing can be expensive. Stay organized, get information early, and file on time. Do this, and you'll stay compliant while working with contractors.
