Article Highlights:
- 1099-NEC Filing Requirements
- Filing Due Date
- Independent Contractor Filing Threshold
- Landlords
- Additional Filing Requirements
- Form W-9
- Household Workers
- Penalties
- Endeavors to Mitigate Penalties
- Worksheet
This is our annual reminder that if you hire non-employees to perform services for your business and pay them $600 or more in 2025, you must issue each one a Form 1099-NEC after the end of the year to avoid penalties and the loss of the deduction for their labor and expenses.
The 1099s for 2025 must be issued to employees and lodged with the IRS by February 2, 2026. Normally, the due date is January 31, but because it comes on a weekend, it is delayed to the next working day, February 2, 2026.
Landlords may also be required to file Form 1099-NEC if they are taking advantage of the 20% pass-through deduction (Sec. 199A deduction) for business income. The IRS warns landlords in its regulations for this tax code provision that in order to be treated as a trade or company (and hence generally qualified for the 199A deduction), they should consider reporting payments to independent contractor service providers on IRS Form 1099-NEC. This was not previously necessary for rental activities, and it is currently not required when a rental is classified as an investment rather than a trade or business.
Additional Filing Requirements: Although not commonly used, Form 1099-NEC filing is needed in the following situations:
- To record sales of $5,000 or more of consumer products to individuals on a buy-sell, deposit-commission, or other commission basis for resale, use Form 1099-NEC or Form 1099-MISC.
- File Form 1099-NEC for all individuals who have had federal income tax withheld under backup withholding procedures, regardless of payment amount (report in Box 4).
Form W-9: It is not uncommon to have a repairman out early in the year, pay them less than $600, and then use their services again later, bringing the total for the year above the $600 limit. As a result, you may easily neglect gathering the necessary information, such as their full name and tax identification number (TIN), to file the 1099s for the year. As a result, it is best practice to have unincorporated individuals file and sign the IRS Form W-9 the first time you engage their services, regardless of whether the first payment exceeds the 1099 filing threshold. Having correctly filled and signed Form W-9s for all independent contractors and service providers prevents errors and protects you from IRS penalties, potential loss of business deduction, and disagreements.
The IRS Form W-9 allows you to get the information needed to file 1099s for your vendors, contractors, or service providers. This information comprises the individual's name, address, type of business entity, and TIN (typically a Social Security number or an Employer Identification Number), as well as certifications of ID number and citizenship status. It also verifies that you followed the law if the individual provided you with false information. We strongly advise you to have potential vendors, contractors, and other business partners complete Form W-9 before doing business with them.The form can be printed and filled out, or completed onscreen and then printed. A Spanish-language version is also offered. The W-9 is exclusively for your use and will not be filed to the IRS. The IRS last amended the W-9 in March 2024, so if you previously produced blank W-9s from an earlier version to deliver to your vendors, you should print copies of the most recent version (with instructions) and delete the older unneeded forms.
Household workers are classified as employees, so 1099-NEC worker reporting does not apply to them. Call for more information.
Penalties: If a business fails to submit a Form 1099-NEC or Form 1099-MISC by the deadline, penalties range from $60 to $340 per form for filings in the 2026 tax year (1099-NECs for 2025), depending on the lateness of the submission. If a firm deliberately violates the need to deliver an accurate Form 1099-NEC or Form 1099-MISC, they will incur a minimum penalty of $680 per form or 10% of the income stated on the form for the 2025 tax year, with no higher maximum.
To reduce penalties, have the contractor fill out a Form W-9, Request for Taxpayer Identification Number and Certification, when they are first recruited. If that was not done, the following actions may help reduce penalties:
- Make up to three attempts to get the payee's TIN, demonstrating reasonable efforts were made. Document all attempts via email, certified letter, or text messaging.
- If the contractor fails to furnish their TIN, initiate backup withholding at a 24% rate on any subsequent reportable payments and send to the IRS.
- If the TIN is not received by the filing date, file a paper Form 1099-NEC with "Refused" in the TIN area.
Respond to IRS notices: The IRS may inquire about the missing TIN. You should respond quickly with evidence of your attempts to obtain the TIN.Noncompliance fines: If filing requirements are purposefully ignored, such as failing to collect a TIN, significant penalties ($660 per form for the 2025 tax year) may be levied, with no maximum limit. Following these processes is critical in reducing penalties.
State filing deadlines can vary. Some states take part in the Combined Federal/State Filing Program, while others need direct filing.
E-File Mandate: Filers must electronically submit returns if they file ten or more returns in a calendar year.
This threshold is calculated by aggregating several types of returns, rather than having separate limits for each return type as was previously the case.
Paper Filed 1099-NECs: If a business is not required to e-file, 1099-NECs can be filed on special optically scannable forms.
Preparing for Next Year: The One Big Beautiful Bill Act increased the reporting threshold for independent contractors paid during the 2026 tax year to $2,000. Ensure that W-9s are collected from all independent contractors, even if the threshold is greater than it has been in the past.
If you need help submitting a 1099-NEC or have any questions about it, please contact our office. You can fill out the 1099-NEC worksheet and send it to this company to prepare 1099s.
