What Is Form 1099-NEC?
Form 1099-NEC is a tax form used to report non-employee payments to the IRS and workers. If your business paid $600 or more to a freelancer or contractor for services, you must complete a 1099-NEC for them. A 1099-NEC is also required for each payee if you withheld federal income tax from their payment, regardless of the amount.
Reporting Consumer Product Sales
Form 1099-NEC can also be used to report consumer product sales totaling at least $5,000 intended for resale. You can also report them on Form 1099-MISC. Only report them on one form, not both.
If you paid any workers who are not on your employee payroll, you must file a 1099-NEC for them. For the 2025 tax year, this form is due to the IRS and workers by Monday, February 2, 2026. This deadline applies whether you’re paper-filing or e-filing. The IRS uses the form to verify that the recipient reports their nonemployee compensation correctly on Schedule C of Form 1040.
What Is Nonemployee Compensation?
Nonemployee compensation is a type of payment not included on regular payroll reports. If the payment meets the four criteria provided by the IRS, the business typically files a 1099-NEC. Payments qualify as nonemployee compensation if the business pays a worker who:
- Is not an employee of the organization
- Provides services used for your business’s organization
- Receives payments as an individual, partnership, estate, or eligible corporation
- Earns $600 or more in payments during the tax year
Examples of nonemployee compensation include service fees paid to freelancers and commissions or bonuses awarded to independent contractors. Prizes and awards tied to services also go on a 1099-NEC. Meanwhile, you don’t have to file a 1099-NEC for personal payments—it’s only required for payments tied to a company’s trade or business.
Form 1099-NEC Changes for the 2025 Tax Year
For 2025, Form 1099-NEC now requires the reporting of excess golden parachute payments in Box 3. Previously, these payments were reported in Box 14 of Form 1099-MISC.
Golden parachute payments refer to large compensation packages given to executives who have been terminated as part of a corporate takeover. US tax laws limit parachute payments to the equivalent of three times the employee’s base amount. Any payments that exceed this amount must be reported on the Form 1099-NEC as an excess golden parachute payment.
Other requirements that continue into the 2025 tax year include the $600 threshold for reporting nonemployee compensation. The mandatory electronic filing threshold for information returns, including Form 1099-NEC, was lowered to 10 or more forms. This change took effect for forms filed starting in 2024 and continues for the 2025 tax year.
Differences Between Form 1099-NEC & Form 1099-MISC
For a long time, businesses used Form 1099-MISC to report all miscellaneous payments, including those made to freelancers and independent contractors. That changed in the 2020 tax year when the IRS reintroduced Form 1099-NEC.
Now, Form 1099-MISC is used for miscellaneous payments that don’t involve nonemployee compensation, such as rent, royalties, and health care expenses. On the other hand, the Form 1099-NEC now reports all nonemployee service payments over $600 or federal tax withholdings.
How to Fill Out Form 1099-NEC
Complete your Form 1099-NEC forms by gathering and recording the proper information and filing for each individual payee. The following steps guide you through each section of the form, providing information about the relevant tax regulations and processes.
1. Identify 1099-NEC Recipients
Determine which of your business’s payees meet the requirements for a 1099-NEC. Next, calculate how much you paid each of them. You’ll complete a 1099-NEC for each qualifying payee who received at least $600 from your organization.
However, you shouldn’t immediately ignore any nonemployee payments that fall below the $600 minimum. Any nonemployee payment requires a 1099-NEC if your business withheld federal income taxes from it.
2. Provide Your Payer Identification Information
In the top left-hand box of Form 1099-NEC, enter your organization’s name, street address, city, state, country, ZIP code, and phone number. List your tax identification number (TIN) in the “Payer’s TIN” box.
3. Indicate the Recipient’s Information
Ask the payee to complete Form W-9, which allows them to provide the information used on the 1099-NEC. List the payee’s TIN in the “Recipient’s TIN” field. If a contractor doesn’t submit their TIN, you may need to withhold backup withholding at a rate of 24%. If the contractor hasn’t received a TIN yet, write “Applied For” in this field. Then, enter the recipient’s name and their street address and city, state, country, and ZIP code in the corresponding fields.
If you have multiple accounts for one recipient, you may complete multiple 1099-NEC forms for them. List a unique account number on each form to indicate that you issued payments to them through different systems or departments. You only need to use one 1099-NEC form per recipient if you issued multiple payments for the same purpose.
Check the “2nd TIN Not.” box if you’ve received two notices within the last three years of an incorrect TIN for the recipient. A checkmark in this box indicates to the IRS that you attempted to comply and obtain the correct TIN from the recipient, but received two notices stating it’s incorrect.
4. List Total Nonemployee Compensation
In Box 1, enter the recipient’s total nonemployee compensation for the 2025 tax year. In most cases, the amount entered will be more than $600. If you’re only completing Form 1099-NEC to report tax withheld, you can report the amount paid even if it’s less than $600.The payee will use their copy of the 1099-NEC to complete their federal income tax return with Form 1040.
If you made at least $5,000 in sales of consumer products to the payee for resale, check Box 2. You don’t need to enter the total sales amount. The checkbox is sufficient for the IRS, as it tells them to expect the reseller to report the income from the resale. Alternatively, you can report any direct sales totaling at least $5,000 on Form 1099-MISC instead of the 1099-NEC.
5. Include Excess Golden Parachute Payments
New for 2025, report any relevant excess golden parachute payment amounts in Box 3. Include the amount of payment that’s over the tax limits to reflect the excess accurately. If the payee did not receive any parachute payments or any excess amounts, you can leave this box blank.
6. Write Any Federal Tax Withholdings
If you withheld any money from the recipient for federal taxes, write the total withholding in Box 4. Any withholding taken from nonemployee compensation, even for payments of less than $600, must be reported using this form.
7. Provide State Information (Optional)
Use Box 5 to note any money withheld from the recipient’s earnings for state income taxes. In Box 6, list the payee’s state abbreviation and state tax identification number. Use Box 7 to indicate the total payment made to the recipient’s state for taxes.
The IRS maintains that state information is optional. However, some states require organizations to submit 1099-NEC forms to the state tax department. If you’re unsure whether you need to report state information to a local tax department, check with a qualified tax advisor. Note that some states don’t have income tax, so there’s no need to enter information into the boxes.
How to File Form 1099-NEC
The IRS requires businesses with 10 or more information returns, including Form 1099-NEC, to file electronically. The deadline for filing Form 1099-NEC with the IRS is February 2, 2026, for the 2025 tax year. You must also provide a copy to your recipient payees by this date.
You can complete electronic filing via the IRS Information Returns Intake System (IRIS). It’s free to use, but you’ll need to apply for an IRIS Transmitter Control Code (TCC). Some third-party providers also facilitate Form 1099-NEC filings through their software.
If your organization has fewer than 10 information returns, you may submit them through the mail to the appropriate IRS processing center. If you opt for paper processing, each 1099-NEC contains four copies:
- Red Copy A: This copy goes to the IRS. You cannot fill out the red copy on your own, as it requires special ink and paper. You can order free copies from the IRS or buy them from approved retailers.
- Copy 1: This copy goes to the recipient’s state tax department.
- Copy B: This copy goes to the recipient.
- Copy 2: This copy gets filed with the recipient’s state income tax return (when required).
Obtain a new form and mark “Corrected” at the top if you need to correct the information on your 1099-NEC after filing. Provide the most up-to-date information and submit it to the recipient and the IRS.
What Happens if I Miss the Filing Deadline?
Failing to meet the IRS filing deadline may result in a penalty. Penalties are on a per-form basis, so if you have several Form 1099-NECs to file, you may incur a fee for each one that’s late. The fees vary depending on how late you are and whether you intentionally disregarded the deadline. View the following IRS penalties for late or unfiled forms:
- Filed within 30 days of the due date: $60 per form.
- Filed more than 30 days late, but before August 1: $130 per form.
- Filed on or after August 1: $340 per form.
- Intentional disregard: $680
In addition to the penalties, the IRS may also charge interest. The interest accumulates until the balance of your account is paid off.
Sample 2025 Form 1099-NEC
Use Legal Templates’s sample Form 1099-NEC to learn what Form 1099-NEC looks like and better understand how to fill it out. Then, complete yours online using our guided form. Download copies for the recipient and local tax department in PDF or Word format.
