1099-NEC Filing Guide: How to Issue 1099s as a Small Business (2026)

The 1099-NEC is the IRS's way of tracking payments to non-employees. If you paid a contractor $600 or more for services in 2025, you must issue them a 1099-NEC by January 31, 2026 — and file the same data with the IRS.

When you must file

Issue a 1099-NEC if all of the following are true:

1. You paid the recipient $600 or more in services during the year
2. The recipient is not a corporation (with two carve-outs: legal services and medical services — those still get 1099s even when paid to a corp)
3. The payment was for services (not goods)
4. The payment was made in the course of your trade or business

You don't issue a 1099-NEC for:

• Payments to corporations (except attorneys + medical providers)
• Payments processed via credit card or third-party network (PayPal, Stripe, Venmo for biz payments) — those are reported on 1099-K by the payment processor
• Personal payments (your kid's babysitter for the family)
• Payments under $600

1099-NEC vs 1099-MISC vs 1099-K

Form	What it reports
1099-NEC	Non-employee compensation (services) — most common for SMBs
1099-MISC	Rents, royalties, prizes, healthcare payments, attorney gross proceeds
1099-K	Payments via credit card / third-party platforms (issued by Stripe, PayPal, etc.)
1099-INT	Interest income
1099-DIV	Dividends

If you're a small business, you're almost always issuing 1099-NEC. Your bank/processor handles 1099-K automatically.

The W-9 — collect FIRST

Before you pay any contractor, get a Form W-9 from them. It captures:

• Legal name + business name
• Tax classification (sole prop, LLC, corp, partnership)
• TIN (SSN or EIN)
• Address
• Backup withholding status

If a contractor refuses to provide a W-9, you must do 24% backup withholding on payments over $600.

Filing deadlines

Recipient/Filing	Deadline
Furnish 1099-NEC to recipient	January 31, 2026
File with IRS (paper)	January 31, 2026
File with IRS (electronic)	January 31, 2026
State filings (varies)	Typically January 31 or February 28

The 1099-NEC has the same deadline for both recipient and IRS — no later filing window for the IRS like 1099-MISC.

How to file

Three options:

1. Paper filing

• Order official red Form 1099-NEC and Form 1096 (transmittal) from IRS or office supply store
• Type or print the data — the IRS rejects handwritten forms
• Mail to your IRS service center (depends on state)
• Allowed only if filing <10 returns. The IRS made e-file mandatory for filers of 10+ returns starting in 2024.

2. E-file via IRS FIRE system

• Free if you have a Transmitter Control Code (TCC)
• Tedious — requires specific file format
• Best for businesses filing 10+ returns who already have payroll software

3. Use a third-party e-file service (recommended)

• Track1099 — $2.99 per form, easy UI
• Tax1099.com — $2.95 per form
• Yearli by Greatland — bulk pricing
• Most payroll software (Gusto, Rippling, QuickBooks) handles 1099s as an add-on

For most SMBs filing 1-50 1099s, Track1099 or Tax1099 is easiest.

State filing

Most states require their own 1099 filing — the federal one doesn't satisfy state tax authorities automatically. Some examples:

• California: Required only for backup-withholding situations
• New York: Required if NY tax withheld
• Pennsylvania: Required for PA-source income
• Iowa, Massachusetts, Oklahoma, Oregon: Mandatory state 1099-NEC filing

Track1099 and Tax1099 both offer "Combined Federal/State Filing" which handles the state pieces automatically for participating states.

Penalties for failing to file

Per IRC § 6721 (2025 inflation-adjusted):

Days late	Penalty per form
≤30 days	$60
31 days – August 1	$130
After August 1 OR not filed	$330
Intentional disregard	$660 (no max)

Plus separate penalties for failing to furnish the recipient copy (same scale).

For a small business issuing 5 1099-NECs that misses the deadline by 60 days = 5 × $130 × 2 (recipient + IRS) = $1,300 in penalties.

What contractors do with the 1099

Each contractor uses the 1099-NEC amount on their own Schedule C (sole prop) or 1120-S (S-Corp) as gross receipts. The IRS cross-checks: 1099-NECs you issued vs returns the recipient filed. Mismatches generate CP2000 notices — and lead to YOU being asked to verify the payment was for legitimate business services.

How to avoid 1099 obligations

You don't have to issue 1099s for payments processed via:

• Credit card (Visa, MC, Amex)
• PayPal Goods & Services (NOT Friends & Family — but never use F&F for business anyway)
• Stripe
• Venmo Business
• Square

These platforms issue 1099-K to recipients above the new threshold ($5,000 for 2025, dropping to $2,500 for 2026). Pay your contractors via Stripe/PayPal Business and you offload the reporting.

How Accountaxed handles 1099 prep

Accountaxed automatically tracks contractor payments per W-9 recipient throughout the year. By December, it generates a 1099-NEC summary listing every contractor, total paid, payment method, and W-9 status — ready to upload to Track1099 or hand to your CPA.

Set up 1099 tracking → · Form 1099-NEC Instructions