Who issues 1099-NEC
A trade or business that pays a nonemployee — independent contractor, freelancer, consultant, attorney, or other unincorporated service provider — at least $600 in cash, check, ACH, or wire during the year must issue Form 1099-NEC by January 31 of the following year. Payments to corporations are generally exempt, with two notable exceptions: payments to attorneys for legal services and payments for medical and health care services are reportable regardless of entity type.
Why it replaced Box 7 of 1099-MISC
Beginning with the 2020 tax year, the IRS revived Form 1099-NEC to separate nonemployee compensation from the broader categories (rents, royalties, prizes) reported on Form 1099-MISC. The split lets the IRS match contractor income to Schedule C earlier in the filing season and aligns the recipient deadline with the payer deadline of January 31.
How recipients use it
Recipients report 1099-NEC income on Schedule C as gross receipts on Line 1. The form is informational — the gross-receipts figure on Schedule C should equal or exceed the total of all 1099-NEC, 1099-K, and 1099-MISC amounts received, plus any cash payments not reported on a 1099. Underreporting is one of the most common triggers for a CP2000 underreporter notice from the IRS.
Backup withholding
If a contractor refuses to provide a Form W-9 with a valid taxpayer identification number, the payer must withhold 24% of the payment as backup withholding and remit it on Form 945. Always collect a W-9 before issuing the first payment to avoid the administrative burden of backup withholding mid-year.
Filing mechanics
Copy A is filed with the IRS (electronically through the Information Returns Intake System or on paper with Form 1096 transmittal). Copy B goes to the recipient. Copy 1 may be required by the state. The IRS now requires electronic filing for any filer issuing 10 or more information returns of any type combined.
What it does not cover
Form 1099-NEC, Nonemployee Compensation does not stand alone — it lives inside a small ecosystem of supporting forms, schedules, and elections that together carry the full weight of a small-business return. Knowing what Form 1099-NEC, Nonemployee Compensation does not handle is just as important as knowing what it does. The instructions list the cross-references explicitly: items computed elsewhere (Schedule C net profit, Schedule SE self-employment tax, Form 4562 depreciation), items reported on a separate form (Form 8829 home office, Form 1099-NEC information returns), and items handled by an entirely different return entirely (Form 1120-S for S-corps, Form 1065 for partnerships). Drawing the boundary cleanly avoids double-counting and avoids leaving deductions on the table.