A 1099-NEC form should not be issued for payments to corporations (C or S corps), employees (use W-2), or individuals paid less than $ 600 $ 6 0 0 in a calendar year. Other exceptions include payments for goods/merchandise, foreign entities, or services paid via credit card.
The 1099-NEC reporting threshold for nonemployee compensation is $600 for payments made in 2024 and 2025, but it increases to $2,000 for payments made in 2026 and thereafter, with the $2,000 amount adjusted annually for inflation starting in 2027. Businesses must file Form 1099-NEC if they pay $600 or more (or $2,000 or more in 2026+) for services to someone who isn't their employee.
When a business pays an independent contractor for services performed in the course of that business, the service recipient must file Form 1099 MISC if the payment is $600 or more for the year, unless the service provider is a Corporation.
Generally, C corporations, S Corporations, and LLCs formed as corporations or S Corps don't need to receive a 1099-NEC or 1099-MISC.
Businesses should report payments of nonemployee compensation totaling $600 or more on IRS Form 1099-NEC. This threshold increases to $2,000 beginning in 2026 and is thereafter indexed for inflation.
If you receive a 1099-NEC but don't consider yourself a business owner, the IRS still classifies you as self-employed for that income, requiring you to report it on Schedule C (Profit or Loss From Business), even without a formal business name or EIN, and pay self-employment tax (Social Security/Medicare) on Schedule SE; you can claim expenses on Schedule C to lower your taxable income. The payer considered you a non-employee contractor, so you must file as if you have a business, using your own name on Schedule C and paying taxes not withheld from your payments.
Key Takeaways
If a business intentionally disregards the requirement to provide a correct Form 1099-NEC or Form 1099-MISC, it's subject to a minimum penalty of $660 per form (tax year 2025) or 10% of the income reported on the form, with no maximum.
A 1099 requirement is triggered when a business pays an independent contractor or unincorporated entity $600 or more (increasing to $2,000 after 2025) in a calendar year for services, or makes other specific payments like royalties or rents, requiring the payer to report these to the IRS using Form 1099-NEC (for services) or 1099-MISC (for other income), unless the recipient is a corporation (with exceptions for law firms).
What is the 1099 tax rate? 1099 workers are taxed at a 15.3% self-employment rate. Normally, this 15.3% is split equally between employers and employees. However, self-employed workers are both the employer and the employee, so they're on the hook for both halves.
You generally exclude payments to corporations (C-corps, S-corps, and many LLCs), tax-exempt organizations, and for specific things like merchandise or freight, but exceptions exist for attorneys, medical services, and certain other professional fees even if paid to a corporation; also, payments via credit/debit cards or third-party processors (like PayPal) are typically handled by the processor, not you.
Filing your taxes without 1099 is okay as long as you pay the right amount of tax and report your income. This is because, even though you might not receive the form 1099, the IRS probably will and if you do not declare it along with your income tax, you will incur some penalties.
If you pay independent contractors, you may have to file Form 1099-NEC, Nonemployee Compensation, to report payments for services performed for your trade or business.
If the entity you paid for services is an S-Corp or C-Corp, you do not need to issue a 1099-NEC unless the payment was for legal services. Legal services are reported regardless of the type of entity the law firm is. Also, certain electronic payments are exempted.
Will the IRS catch a missing 1099? The IRS knows about any income that gets reported on a 1099, even if you forgot to include it on your tax return. This is because a business that sends you a Form 1099 also reports the information to the IRS.
A Freelancer Who Doesn't Get A 1099-NEC Must Still Report That Income. If you did not receive Form 1099-NEC from every single client who paid you $600 or more for your work, it does not mean you can omit reporting the income received from those clients to the IRS. There's a penalty for not filing 1099 income.
You generally receive a Form 1099-NEC instead of a W-2 because the company who hired you didn't consider you an employee and consequently didn't withhold income tax, social security tax or Medicare tax from your pay.
Exceptions to Filing Form 1099
Exclusions from Form 1099 for business-related payments that may be taxable include payments for merchandise, inventory, freight, and storage, as well as rent payments to real estate agents.
In general terms, Form 1099-MISC is issued to everyone but corporations. This includes individuals, partnerships and most professional business entities. An LLC is only considered to be a corporation if it has elected to be taxed as a corporation. If it has not, the LLC should receive a 1099-MISC.
If you earned less than $600 from a single payer, they aren't required to send you a 1099 at all. Remember: The $600 minimum applies to the tax year. If you started working with a certain company — or signed up for a certain job site — later in the year, you might not have hit the required threshold yet.
If payment for services you provided is listed on Form 1099-NEC, Nonemployee Compensation, the payer is treating you as self-employed, also referred to as an independent contractor. You don't necessarily have to have a business for payments for your services to be reported on Form 1099-NEC.