When a 1099-NEC is required, and when it is not

Most 1099 checklists in circulation say $600. For the forms your firm will file in January 2027, covering payments made during 2026, that number is wrong.

The IRS instructions for the 2026 forms put the change plainly: for tax years beginning after 2025, the minimum threshold amount for reporting certain payments on certain information returns increased to $2,000, and may be adjusted for inflation beginning in calendar year 2027. The $600 figure it replaces had been in the statute, unindexed, since 1954.

That single change will do two things to a mid-sized contractor list. It will drop a tail of small payees off the filing list entirely, and it will make every stale checklist over-file, which is not a penalty, but is unpaid work, and it furnishes statements to people who did not need one.

Four tests, and all four have to be true

The instructions describe nonemployee compensation as a conjunction, not a dollar figure. A payment is reportable on Form 1099-NEC when every one of these holds:

• You made the payment to someone who is not your employee. Someone who is your employee is a W-2, and the distinction is a worker-classification question, not a paperwork one.
• You made it for services in the course of your trade or business. The instructions limit reporting to payments made in the course of a trade or business, and that includes nonprofit organizations and government agencies. A charity paying a contractor files the same form a design studio does.
• You made it to an individual, a partnership, an estate, or in certain cases a corporation.
• The payments to that payee total at least $2,000 for the year.

The threshold has one important exception

If you withheld federal income tax from a payee under the backup withholding rules, a Form 1099-NEC is required for that payee regardless of the amount of the payment. A $300 payment to a contractor who never gave you a TIN, from which you withheld, is a filing obligation; the same $300 to a contractor who did give you one is not.

This is the practical reason to chase W-9s in November rather than January. Backup withholding is the payer's obligation under IRC section 3406 once a payee has not furnished a TIN, and the form it produces is a form you would otherwise not have had to file at all.

What is not a 1099-NEC

The instructions list categories that fall outside these forms entirely:

• Payments to a C corporation or an S corporation, generally. The important exception is attorneys: attorneys' fees of $2,000 or more paid in the course of your trade or business are reportable on Form 1099-NEC box 1a whether or not the firm is incorporated.
• Payments made with a credit card or payment card, or through a third-party payment network. Those are reported by the settlement entity on Form 1099-K, not by you. A firm that pays contractors through a card or a platform and also issues a 1099-NEC for the same money has double-reported it.
• Wages and anything else belonging on a Form W-2.
• Merchandise and similar items: these forms report services, not goods.
• Personal payments. The trade-or-business test is a real gate: paying someone to redo your own kitchen is not reportable, paying the same person to redo the office is.

1099-NEC or 1099-MISC

Both forms exist because they carry different boxes and, importantly for planning January, different dates. Two common categories:

Nonemployee compensation

Form 1099-NEC, box 1a. Filed with the IRS and furnished to the recipient on the same date.

Rents

Form 1099-MISC, box 1: amounts of $2,000 or more for all types of rents, including real estate, machine and pasture rentals.

Royalties

Form 1099-MISC, box 2: gross royalty payments of $10 or more. This threshold did not move; the $10 royalty floor is its own rule.

If you get it wrong in the safe direction

Filing a 1099-NEC for a payee under the threshold is not itself a penalty. Failing to file one that was required is: the information-return penalty is charged for each return you did not file correctly or on time, and again for each payee statement you did not provide correctly and on time. For returns required to be filed in 2027 the tiers run $60 for up to 30 days late, $130 through August 1, and $340 after August 1 or not filed at all, with the greater of $690 or 10% of the amount that should have been reported for intentional disregard, and no maximum on that last tier.

Two penalties, not one, is the part firms miss. Filing with the IRS and furnishing to the recipient are separate duties under separate sections, and a January that only does the first leaves the second live.