Yes, but only for specific types of work and only if certain conditions are met

An individual can issue a Form 1099-NEC (Nonemployee Compensation) to another individual, but only if that person is a self-employed contractor or business owner who provided services to you. You cannot issue a 1099 to someone you paid as an employee, even if you paid them in cash or didn't withhold taxes. The IRS distinguishes between workers based on the nature of the relationship and the control you had over their work, not on how you paid them.

The most common scenario is a homeowner paying a plumber, electrician, or other tradesperson who runs their own business. A freelance writer, graphic designer, or consultant who invoices you for work also receives a 1099-NEC. The key is that the person must be operating as a business or sole proprietor, not working under your direction as a regular employee.

Key Takeaways

  • You issue a 1099-NEC only to someone who provided services as an independent contractor or self-employed business owner, not to employees.
  • The threshold for issuing a 1099-NEC is $600 or more paid to the same person in a calendar year for services.
  • You must have the contractor's correct name, address, and tax identification number (Social Security number or EIN) before you can file the form.
  • A 1099-NEC is filed with the IRS and a copy goes to the contractor by January 31 of the following year.
  • Misclassifying an employee as a contractor to avoid issuing a 1099 can result in penalties and back taxes owed to the IRS.

The $600 threshold and when you must issue a 1099-NEC

You are required to issue a 1099-NEC if you paid a non-employee $600 or more during the calendar year for services. This $600 rule applies to payments made to individuals, sole proprietors, and single-member LLCs. If you paid someone $450 for a one-time repair, you do not have to issue a 1099-NEC. If you paid the same person $300 in January and $350 in December, the total is $650, so you must issue one.

The $600 threshold resets each calendar year on January 1. Payments made in 2024 count toward the 2024 total, and you file the 1099-NEC by January 31, 2025. Payments made in 2025 are tracked separately and filed by January 31, 2026. If you reach $600 in November, you still must issue the form even though you only have two months left in the year.

Some types of payments are excluded from the $600 rule. Rent paid to a landlord, payments to a corporation (even a small one), and payments for merchandise or inventory do not require a 1099-NEC. Medical and health care payments to individuals have different reporting rules. If you are unsure whether a specific payment counts, the IRS Form 1099-NEC instructions list the exclusions.

How to tell if someone is a contractor or an employee

The IRS uses a three-part test to determine worker status: behavioral control, financial control, and the type of relationship. Behavioral control means you direct how the work is done, when it is done, and where. If you tell someone to show up at 9 a.m., follow your procedures, and use your tools, they are likely an employee. A contractor typically controls their own schedule, methods, and tools.

Financial control looks at who invests in equipment, whether the person works for multiple clients, and how they are paid. A contractor usually has their own business expenses, works for other people, and may charge by the project rather than by the hour. An employee typically uses the employer's equipment, works only for that employer, and receives a regular paycheck.

The relationship itself matters too. An employee usually receives benefits, has a long-term ongoing role, and performs work central to the business. A contractor is brought in for a specific project or task, has no benefits, and may work for you only once. If you have written a contract that says "independent contractor," that helps but does not override the actual working relationship.

What information you need from the contractor

Before you can issue a 1099-NEC, you need the contractor's full legal name, current address, and tax identification number. For most individuals, the tax ID is their Social Security number (SSN). If the contractor is a sole proprietor with an EIN (Employer Identification Number), use that instead. You should collect this information on a Form W-9, which the contractor fills out and signs.

If a contractor refuses to provide a W-9 or gives you incorrect information, you are required to withhold 24 percent of their payments as backup withholding and send that to the IRS. This is a penalty for non-compliance and continues until the contractor provides correct information. Asking for a W-9 early, before work begins, prevents this problem.

Keep the W-9 in your records for at least four years. If the contractor's address or name changes, update your records before you file the 1099-NEC. The name and address on the form must match the contractor's tax return, or the IRS will flag the mismatch.

How to file a 1099-NEC as an individual

You file a 1099-NEC by January 31 of the year following the payments. If you paid contractors in 2024, you file by January 31, 2025. You must send Copy B (the contractor's copy) to the contractor and file Copy A with the IRS. Many individuals file on paper, but you can also file electronically through the IRS e-file system if you have multiple forms.

You can obtain blank 1099-NEC forms from the IRS website, from tax software, or from office supply stores. Fill in your name, address, and tax ID (your SSN or EIN if you have one) in the "Filer" section. In the "Recipient" section, enter the contractor's information from their W-9. In Box 1, enter the total amount you paid them for services during the year.

If you file on paper, you must use the official IRS form or a substitute that meets IRS specifications. Send the contractor their copy by January 31. Keep a copy for your records. If you file electronically, the IRS handles distribution to the contractor. Some tax software allows you to prepare and file 1099-NECs directly, which simplifies the process.

Penalties for not issuing a 1099-NEC when required

If you fail to issue a 1099-NEC when you should have, the IRS can assess penalties. The penalty starts at $50 per form if you file late but within 30 days of the important date. If you file more than 30 days late, the penalty increases to $100 per form. If you do not file at all or file with incorrect information, the penalty can reach $250 per form.

Beyond the penalty, not issuing a 1099-NEC can trigger an audit. The IRS matches 1099s filed by contractors (who report the income on their tax returns) against the 1099s you file. If a contractor reports income from you but you did not file a 1099-NEC, the IRS notices the discrepancy. This can lead to questions about whether the contractor was actually an employee, which may result in back taxes, penalties, and interest owed by you.

Intentionally misclassifying an employee as a contractor to avoid issuing a 1099-NEC is considered tax evasion. The IRS can assess penalties of 20 percent or more of the unpaid taxes, plus interest dating back to the original due date.

1099-NEC versus other 1099 forms

The 1099-NEC is the form for nonemployee compensation — services performed by an independent contractor. It replaced the older 1099-MISC for this purpose starting in 2020. If you paid a contractor for services, use 1099-NEC.

Other 1099 forms exist for different types of payments. A 1099-INT reports interest income. A 1099-DIV reports dividends. A 1099-MISC is still used for certain miscellaneous payments like prizes, awards, or payments to attorneys, but not for general contractor services. If you are unsure which form applies, the IRS instructions for each form list what payments belong in that category.

You do not issue any 1099 form to an employee. Employees receive a W-2 instead, which you file with the IRS and provide to the employee by January 31. The W-2 includes wages, taxes withheld, and benefits information. If you paid someone as an employee but issued a 1099-NEC instead, you have misclassified them.

Frequently Asked Questions

Do I have to issue a 1099-NEC if I paid someone in cash?

Yes. The method of payment does not matter. If you paid a contractor $600 or more in cash, check, credit card, or any other way for services, you must issue a 1099-NEC. The IRS requires reporting based on the amount paid and the nature of the work, not on how the money changed hands.

What if the contractor does not have a Social Security number?

If the contractor is a non-U.S. citizen without an SSN, they may have an ITIN (Individual Taxpayer Identification Number) issued by the IRS. Ask for their ITIN on the W-9. If they have neither an SSN nor an ITIN, you must withhold 24 percent of their payments as backup withholding and report it to the IRS.

Can I issue a 1099-NEC to a family member?

Yes, if the family member is a self-employed contractor and you paid them $600 or more for services. The relationship does not exempt you from the reporting requirement. You still need a W-9 and must file the 1099-NEC by the important date.

What happens if I issue a 1099-NEC but the contractor does not report the income?

The IRS receives your copy of the 1099-NEC and expects the contractor to report that income on their tax return. If they do not, the IRS will likely contact them about the discrepancy. You are not responsible for the contractor's tax compliance, but issuing an accurate 1099-NEC protects you from penalties.

Do I need to issue a 1099-NEC if I paid a business instead of an individual?

No. If you paid a corporation, partnership, or LLC (other than a single-member LLC), you do not issue a 1099-NEC. You only issue 1099-NECs to individuals and sole proprietors. Payments to businesses are tracked differently for tax purposes.