A 1099-NEC is the form you use to report payments of $600 or more to someone who isn’t your employee. NEC stands for nonemployee compensation. If you paid a subcontractor, freelancer, or independent service provider $600 or more during the calendar year, you’re required to file this form. It replaced the old Box 7 on the 1099-MISC starting in 2020.

This comes up constantly in the trades. If you’re a general contractor who paid a framing crew, a plumber on a job, or a cleanup crew after a project, and those people aren’t on your payroll, you likely owe them a 1099-NEC. The same goes for other service payments like an independent bookkeeper, a consultant, or a marketing person you hired. The rule applies to payments made to individuals, partnerships, and LLCs taxed as sole proprietors or partnerships. You generally do not need to issue a 1099-NEC to corporations, though there are exceptions for attorneys.

The deadline is January 31. That applies to both the copy you send to the recipient and the copy you file with the IRS. There’s no automatic extension on this one. Miss it and penalties start at $60 per form and go up from there depending on how late you are. If the IRS determines you intentionally didn’t file, the penalty jumps to $630 per form with no cap.

The most important thing you can do to make filing painless is collect a W-9 from every subcontractor or vendor before you pay them. The W-9 gives you their legal name, address, taxpayer ID number, and entity type. Without it, you’re chasing people down in January when they’re less motivated to respond. Make it part of your onboarding process. No W-9, no first check.

You’ll need to track total payments to each person throughout the year. This is where solid bookkeeping for trades businesses makes a real difference. If your books accurately record who you paid and how much, generating 1099s at year end takes minutes instead of days. If your books are a mess, you’ll be digging through bank statements trying to piece together a year’s worth of payments.

You can file 1099-NEC forms electronically through the IRS IRIS portal or through your accounting software. If you’re filing 10 or more forms, electronic filing is now required. Paper filing is still an option for smaller volumes but electronic is faster and gives you confirmation that the IRS received everything.

One thing to watch out for is payments made through third-party platforms like Venmo, PayPal, or credit cards. Those get reported on a 1099-K by the payment processor, so you don’t need to include those amounts on a 1099-NEC. But payments made by check, cash, ACH, or Zelle do count toward the $600 threshold because those aren’t processed by a third-party settlement organization.

If you’re behind on prior years or unsure whether you filed correctly, it’s worth getting caught up. The IRS matches 1099s against the income reported on your subcontractors’ tax returns. If there’s a mismatch because you didn’t file, both parties can end up with questions from the IRS. Filing accurate business tax returns means having your 1099 obligations handled properly as part of the process.

Start collecting W-9s now, track payments as you make them, and mark January 31 on the calendar. The form itself is simple. The hard part is having the information ready when you need it.