What is the 1099-NEC Form used for? | Who needs to file it?

November, 03 2025 by Glynis Miller, CPA, MST

On July 4, 2025, the One Big Beautiful Bill (BBB) was signed into law, and with it came significant changes affecting the Form 1099-NEC report. The information below should help those required to file the form meet their obligations. The IRS does provide line-by-line instructions for completing all of the necessary forms; however, this article is meant to simplify those details.
 

Summary of Form 1099-NEC

The IRS utilizes various versions of Form 1099 to report different types of income and compensation. One of those is Form 1099-NEC, which has a long history dating back to 1982, when it was first introduced to the broader 1099 Form series of information returns. Specifically, it was created for reporting non-employee compensation to those who earned compensation but were not considered employees. Between 1983 and 2019, Form 1099-NEC was discontinued, and instead, non-employee compensation was reported on Form 1099-MISC along with other payments. Due to confusion surrounding various deadlines allowed for Form 1099-MISC, the IRS reintroduced the Form 1099-NEC for businesses to report non-employee compensation in 2020. The various reporting requirements have impacted many small businesses, independent contractors, and gig workers over the years, and these recent changes will impact them again.
 

What information is required to be included on Form 1099-NEC?

The issuer (Payer) is required to include its name, address, phone number, and TIN (tax identification number) on the form, as well as the name, address, and TIN of the recipient.  The 1099-NEC has very few boxes to report information related to compensation when compared to other information forms. Box 1 on the form reports the gross compensation amount paid to the recipient who has been identified on the form by name and TIN, which in most cases is an individual's social security number, but can also be a FEIN (Federal Employer Identification Number). 

If the payer has sold consumer products to the recipient for resale worth at least $5,000, this fact must be noted by placing an X in the little box for Box 2 to make that indication. The most recent version of Form 1099-NEC has designated Box 3 to be used to report any excess golden parachute payments, while boxes 4 and 5 are used to report federal and state income taxes withheld, respectively. However, in most cases, the compensation reported on Form 1099-NEC will not have any taxes withheld. Box 6 is used to identify the state source of the compensation and the Payer’s state number, and Box 7 is for the state income if different than the gross amount reported in Box 1.
 

Who must issue Form 1099-NEC?

If you have a trade or business and you pay an independent contractor for any services in connection with your trade or business, you must issue a Form 1099-NEC when four specific conditions are met:
 

• You paid someone who is not an employee of your business
• You made payments for services received in the course of your trade or business (even if government agencies and nonprofit organizations must issue the form)
• You paid for services rendered by an individual, a partnership, an estate, and, under certain circumstances, some corporations.
• You paid someone at least the minimum threshold amount* set by the code or more for the services received in the year. 
  * Note: As of the writing of this article, $600 is the current minimum payment for tax years through 2025.

Who must receive Form 1099-NEC?

Form 1099-NEC should be issued to non-employees, such as individuals, partnerships, estates, and sometimes corporations, who meet the four specific payment conditions listed above. While you generally don't file a 1099-NEC for services paid to a corporation, there is a key exception: the form must be issued when paying an attorney for legal fees, even if the attorney operates as a corporation.

Please keep in mind that other Form 1099 versions may have different rules.
 

What is the current threshold payment requirement?

Currently, the minimum payment requirement for issuing Form 1099-NEC is set at $600. This has been the reporting threshold amount for many years, but it does have an exception if any income taxes have been withheld from compensation. In cases where the issuer has withheld income taxes that must be paid and reported to the IRS or state taxing agency, the $600 minimum would be ignored. For example, if the issuer paid an independent contractor $50, but was required to withhold 30 percent as backup withholding (see What are backup withholdings below) in the amount of $15, Form 1099-NEC would need to be issued.

 

What is the future threshold payment requirement, and when is it effective?

With the passing of the BBB, the threshold for the minimum compensation amount paid that requires the issuance of Form 1099-NEC will go from its current $600 to $2,000. The new threshold amount will become effective beginning with compensation paid in tax years that start after January 1, 2026. It is important to note that this will not change the other three conditions noted above that must still be met; it simply changes the threshold on the payment amount. It is also important to note that this change will not have an impact on the exception that is in place requiring the issuer to complete Form 1099-NEC and issue it to anyone for whom they had to withhold federal or state income taxes from the non-employee compensation paid. 

Additionally, starting in tax year 2027, the $2,000 threshold will be adjusted for inflation just like many other tax provisions. Thus, it will be important to review the rules each year to remain compliant with any updated reporting requirements.
 

What are Backup Withholdings?

In some cases, you could be required to withhold a portion of the compensation for backup withholding. But what is a backup withholding (BWH)?  

To understand backup withholding, it is important to first note that if you are going to pay for services from any independent contractors, you should request that they complete Form W-9, Request for Taxpayer Identification Number and Certification. It is best to obtain this Form from the taxpayer prior to making any payments, even if you do not believe you will exceed the Form 1099-NEC threshold. 

When a taxpayer will be providing you with services, they should be willing to provide you with their TIN for your records, and thus completing Form W-9 should not be an issue. As noted above, the TIN is required to be included on Form 1099-NEC to identify the taxpayer for whom payments were made for the services you received for your trade or business. 

Earlier, it was noted that withholding taxes are not generally required when issuing Form 1099-NEC to independent contractors or those who are presumed to be in some form of business for themselves. The reason is that the IRS presumes that these individuals will be filing a tax return to report their appropriate income and pay any taxes they may owe. However, if they fail to provide you with a signed W-9, you are likely required to withhold at least 24 percent as a backup withholding. The backup withholding requirement is generally triggered by the failure to provide accurate information on Form W-9. Thus, simply stated, backup withholding represents an amount that must be withheld from payments that do not normally require withholding. (You can see IRS Topic No. 307, Backup withholding, for more information.)
 

What is the impact?

The biggest impact from the BBB is that this change will result in fewer Form 1099-NECs being completed and filed. As such, it is perceived to reduce the burden related to the paperwork that has been necessary due to the lower payment threshold. Additionally, the gig workers and independent contractors should see a reduction in the number of forms they receive from clients.
 

For the business owner:

• Reduced paperwork means administrative burdens are lessened
• With reduced paperwork, businesses will have lower penalties assessed related to the incorrect or missing filing of Form 1099.
• Even though fewer forms will need to be filed, recordkeeping will remain a critical function regarding independent contract records.
• States may have different rules from the IRS. You should confirm the requirements for any state in which your organization conducts business. 

For the independent contractor (gig workers, etc.):

• Fewer Form 1099-NECs received (beginning 2026)
• Income still needs to be reported, whether a Form 1099-NEC is received or not, and the proper taxes paid by contractors.
• Recordkeeping will remain critical to tracking and reporting accurate income and expenses, but a valuable resource will be lost for reconciling payments.
• Some loss of the ability to verify specific amounts received as income as a self-employed individual. 

The requirements for Form 1099-NEC may differ from those for other Form 1099 types, such as Form 1099-K or Form 1099-MISC. Thus, it is important to review current rules each year to ensure you meet the compliance requirements of the various 1099 forms.