Who Receives Form 1099-NEC? A Comprehensive Guide

Form 1099-NEC is used to report nonemployee compensation paid to individuals or businesses that are not your employees. This includes independent contractors, freelancers, service providers, and outsourcing companies. The form reports payments made for services performed in the course of your trade or business.

If you need to report wages or other compensation paid to employees, you should use Form W-2 instead.

Who receives a Form 1099-NEC?

A Form 1099-NEC is issued to payees who received nonemployee compensation or other reportable payments from a business during the tax year. Generally, a recipient receives Form 1099-NEC when:

• They were paid for services as an independent contractor, freelancer, vendor, or other nonemployee.
• They performed the services in the course of the payer’s trade or business (not personal services).
• They received total payments of $600 or more during the year, unless an exception applies.
• They are an individual, partnership, or estate, or in some cases a corporation.
  • Reportable corporation types include attorneys and certain vendors receiving service payments from federal executive agencies.

Situations where a payee receives Form 1099-NEC regardless of amount:

• Backup withholding: The payee had federal income tax withheld under backup withholding rules at any time during the year.
• Excess golden parachute payments: All excess golden parachute payments are reported on Form 1099-NEC for tax year 2025 and later.
  • Excess golden parachute payments are unusually large severance or bonus payments made when a company changes ownership or control. When these payments exceed IRS limits, the extra amount is treated as an excess golden parachute payment and must be reported.

Other situations where a person or business may receive Form 1099-NEC:

• They purchased $5,000 or more of consumer products for resale on a buy–sell, deposit–commission, or similar arrangement. These direct sales may be reported on either Form 1099-NEC or Form 1099-MISC.
• They provided services but were paid via cash, check, ACH, or other non-card methods. Payments processed by credit card or third-party networks (like PayPal or Square) are not reported on Form 1099-NEC and instead fall under Form 1099-K rules.
  • Payments handled by payment processors may instead be reported on Form 1099 K if the processor meets the IRS filing threshold for that year.

Exceptions

There are some notable exceptions to payments that are not required to be reported on a Form 1099-NEC, although they may be taxable to the recipient. These include, but are not limited to, the following:

• Generally, payments made to a corporation (including an LLC treated as a C or S corporation) are not reportable, except in certain cases such as attorney payments or payments made by federal executive agencies.
• Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
• Payments of rent to real estate agents or property managers.
• Wages, any bonuses, prizes, and awards paid to employees. This should be reported on Form W-2.
• Military differential wage payments made to employees while on active duty. This should be reported on Form W-2.
• Business travel allowances paid to employees under a nonaccountable plan are reported on Form W-2 and are not reported on Form 1099-NEC.
• Cost of current life insurance protection. This should be reported on Form W-2 or Form 1099-R.
• Payments made to a tax-exempt organization including tax-exempt trusts, the US, a state, DC, a US possession or territory, or foreign government.
• Payments made to or for homeowners from the HFA Hardest Hit Fund or similar state program. This should be reported on Form 1098-MA.
• Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor’s benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.
• Compensation for wrongful incarceration for any criminal offense for which there was a conviction under federal or state law.

However, there may be some exceptions to these exceptions. It is always best to consult your tax advisor to determine if you should send out a Form W-9 to request information to a payee.

What information is reported on Form 1099-NEC?

Once you have determined who must receive a Form 1099-NEC, you can request their information through a Form W-9. Form W-9, like Forms W-4 for employees, will provide you with the relevant information for the recipient such as their name, address, and tax identification number.

After retrieving a completed Form W-9 from the nonemployee, you will use the information provided and the finalized amounts paid to prepare a Form 1099-NEC.

The left side of Form 1099-NEC has boxes for the names, addresses, and TINs for the Payer and Recipient. It should also include the name of the transfer agent, if applicable. It also has a checkbox for 2nd TIN Notice.

The right side of the form is used to indicate the tax year being filed, the amounts paid, and the state tax information. These boxes are as follows:

• Box 1 – Nonemployee compensation
• Box 2 – Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale (checkbox)
• Box 3 – Excess golden parachute payments
• Box 4 – Federal income tax withheld
• Box 5 – State tax withheld
• Box 6 – State/Payer’s state no.
• Box 7 – State income

Review what information is required using our companion article Gathering Information to Prepare Form 1099-NEC.

Conclusion

Once you have submitted these forms to the IRS either electronically or via mail and have received your “Accepted” status, then you have met all of the IRS requirements for these forms. Some states require their own 1099 reporting, so you may need to file with the state directly if it does not participate in the Combined Federal State Filing program.

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