What is the 1099 NEC form used for?

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As a small business owner, you’re probably no stranger to IRS forms, especially if you work with freelancers or independent contractors. In 2026, Form 1099-NEC is still the main way the IRS tracks what you’ve paid non-employees, and recent rule changes (like the updated reporting threshold and tighter e-filing rules) make it even more important to get it right.

The form was reintroduced in 2020 to separate nonemployee compensation from Form 1099-MISC, providing its own box, deadline, and reducing mix-ups over which payments are assigned.

In the article, we will learn:

What is the 1099 NEC form?
What’s included on Form 1099-NEC?
How to file the 1099 NEC form?
What are the different copies?
When is the form due?
how to correct an error in filing the form
Is there a penalty for not filing 1099-NEC?

What is a 1099 NEC form?

Reintroduced by the IRS in 2020, the form is for filing non-employee compensations. Non-employee compensations are payments made to individuals classified as independent contractors/freelancers rather than as an employee.

If you pay a nonemployee (such as an independent contractor or freelancer) at least the reporting threshold for services in a year, you generally must issue Form 1099-NEC to report nonemployee compensation.

Typical payments reported in box 1 of Form 1099-NEC include:

– Professional service fees (contractors, designers, developers, accountants, etc.)

– Commissions and referral fees

– Prizes and awards for services performed

– Certain fees paid to attorneys for legal services

Other types of payments – such as rents, royalties, fishing boat proceeds, medical and health care payments, and some attorney gross proceeds – are generally reported on Form 1099-MISC, not 1099-NEC.

For payments in 2025, businesses were required to issue Form 1099-NEC if they paid $600 or more in non-employee compensation to a contractor during the year. In 2026 and later, a recent law increased this reporting threshold to $2,000, with future years indexed for inflation.

Regardless of the threshold, you must file a 1099-NEC if you withhold any federal income tax under backup withholding, even if total payments are below the threshold.

Why the 1099 NEC form?

The IRS returned the form in 2020 to solve small businesses’ confusion regarding the deadline to file 1099-MISC with non-employee compensation.

Before 2015, the deadline to file 1099-MISC with non-employee compensation and other miscellaneous payments was February 28. In 2015, the introduction of the Protecting Americans from Tax Hikes Act (PATH Act) changed the deadline to January 31 for non-employee compensation specifically.

The two different deadlines for the same form confused many small business owners.

To clear up this confusion, the IRS decided to relaunch Form 1099-NEC.

Check out 10 simple ways to avoid paying taxes legally.

What information is on Form 1099-NEC

When filing, you need to provide the following information, but not limited to:

Payer’s details – name, address, number, and Tax Identification Number (TIN).
Recipient’s details – name, address, and TIN.
Amount of non-employee compensation paid.
Federal or state income tax withheld.

See below a sample of the form from the IRS website.

If you have challenges getting the personal information of a freelancer or contractor, you can have them fill out a W-9 form.

How to File Form 1099-NEC

The form must be filed with the IRS before January 31 using either paper or electronic filing.

You must file Form 1099-NEC once your payments to a contractor reach the applicable reporting threshold for that tax year. You have the option to file electronically using the IRS Filing Information Returns (FIRE) system.

If you file 10 or more information returns in total for the year (across all 1099s, W-2s, and other covered forms), the IRS now requires you to file electronically. Only filers with fewer than 10 total information returns may still use paper filing.

Akaunting also lets you file the form using the 1099 Form app.

What are the different copies of the form?

Copies of the form are distributed to different participants in your business operations.

These copies are:

Copy A – This is sent to the IRS.
Copy 1 – sent to your state tax department (if required).
Copy B – sent to the recipient.
Copy 2 – also sent to the recipient and filed with their state income tax return.
Copy C – kept for your business records.

When is Form 1099-NEC due?

The IRS set the due date of form 1099-NEC as January 31, irrespective of your business-adopted method of filing (either electronically or by paper). You’ll need to send copies of the form to recipients and the IRS.

If the due date falls on any Federal holidays or weekends, the next business day will be the due date.

How to correct an error in filing the 1099 NEC form

If you make a mistake while filing Form 1099-NEC, you’ll need to get another copy and mark the box next to “CORRECTED” at the top.

Send the corrected form to the IRS, contractor or vendor, and state agencies (if applicable). And also, file Form 1096 to accompany the return. Do not include a copy of the original return you filed incorrectly.

Note that the IRS splits errors into Type 1 (incorrect money amount, code, checkbox, or filed a return when you should not have filed it) and Type 2 (taxpayer identification number or receiver’s name is incorrect).

Is there a penalty for not filing 1099-NEC?

Try as much as possible to adhere to the due date for filing, as the IRS imposes penalties for delayed filing. There is also a penalty for incorrect information.

The IRS applies penalties to late, incorrect, or missing information returns, including Form 1099-NEC.

For returns due in 2026, the penalties generally range from $60 to $340 per form, depending on how late you file, and can go up to $680 per form in cases of intentional disregard.

The amounts are adjusted periodically, so always check the current IRS “Information return penalties” guidance when filing.

Final thoughts

Form 1099-NEC isn’t just another piece of paperwork; it plays a crucial role in how the IRS keeps track of payments made to freelancers, independent contractors, and others who aren’t your regular employees.

If you frequently collaborate with non-employees, it’s important to keep an eye on your 1099 responsibilities. This helps you steer clear of penalties, unexpected tax bills, and the stress of having to sort things out later.

Being proactive with your 1099 forms can save you a lot of trouble in the long run!

The key is process, not panic. If you:

– Collect Form W-9 from every contractor before you pay them
– Track all non-employee payments throughout the year in your accounting software
– Monitor when those payments reach the IRS reporting threshold for that tax year
– File 1099-NEC forms on time and electronically when required

…then 1099 season becomes a straightforward admin task rather than a scramble.

Akaunting makes it easier to handle ‘boring’ tasks, such as recording contractor payments and tracking totals by payee. This way, keeping your data organized becomes effortless, and generating 1099-NEC forms is straightforward.

However, for unique situations such as mixed services, foreign contractors, or changing thresholds, it’s a good idea to consult with a tax professional for guidance.

Set up a simple 1099 workflow now, and each year you’ll spend less time stressing over forms and more time focusing on growing your business.