Do I Need to File Form 1099-NEC in 2025? — Small Business & Freelancer Reporting Rules Explained (Updated: Jan 2026)
“I paid a freelancer — do I have to issue a 1099-NEC?”
This is one of the most common compliance questions for small business owners and self-employed taxpayers filing 2025 returns in 2026.
The short answer: if you paid $600 or more for services to a non-employee, Form 1099-NEC is usually required.
This guide explains who must file, deadlines, penalties, and how to avoid IRS matching notices.
📌 Table of Contents
1️⃣ What Is Form 1099-NEC?
Form 1099-NEC is used to report nonemployee compensation paid for services.
Prior to 2020, these payments were reported on Form 1099-MISC (Box 7), but the IRS created a separate form to reduce filing errors and late submissions.
- Reports service payments of $600 or more
- Used for freelancers, contractors, and gig workers
- Employees are not reported on 1099-NEC (they receive Form W-2)
2️⃣ Who Must Receive a Form 1099-NEC?
You must issue Form 1099-NEC if all of the following apply:
- The worker is a non-employee
- Total service payments were $600 or more
- Payments were made in the course of your business
- Payments were made by cash, check, ACH, or direct transfer
Payments made through PayPal, Venmo, Stripe, Square, or credit cards are not reported on Form 1099-NEC.
These are reported on Form 1099-K by the payment processor.
3️⃣ Filing Deadline & Penalties
Form 1099-NEC has a strict deadline: January 31.
Both the contractor copy and IRS filing are due on the same date.
- Up to 30 days late: $60 per form
- Filed by August 1: $120 per form
- After August 1 or not filed: $310 per form
- Intentional disregard: $630+ per form
4️⃣ Information Required to File
- Payer’s EIN or SSN
- Contractor’s legal name & address
- TIN from Form W-9
- Total annual payments
- Payment dates & methods
5️⃣ Common 1099-NEC Mistakes
- Double-reporting PayPal or Stripe payments
- Assuming all LLCs are exempt (only C-Corp & S-Corp)
- Reporting product purchases instead of services
- Issuing 1099-NEC for employee wages
A business pays a freelance designer $1,200 during 2025.
The designer is a sole proprietor and provides a valid W-9.
👉 The business must file Form 1099-NEC for $1,200 by January 31, 2026.
6️⃣ How to File Form 1099-NEC
- IRS electronic filing (FIRE system)
- Approved e-file providers
- Paper filing with Form 1096
7️⃣ How Freelancers Report 1099-NEC Income
Freelancers report 1099-NEC income on Schedule C (Form 1040).
Net profit is subject to income tax and self-employment tax.
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Do I need to file Form 1099-NEC if I paid a freelancer less than $600?
No. Form 1099-NEC is only required when total payments for services reach $600 or more during the year.
However, the freelancer must still report the income on their tax return even if no 1099-NEC is issued. -
What happens if I forget to file Form 1099-NEC?
Late or missing filings trigger automatic IRS penalties, starting at $60 per form and increasing to $310 or more.
In addition, failure to file often increases audit risk for both the payer and the contractor. -
Does the IRS actually match Form 1099-NEC with tax returns?
Yes. The IRS electronically matches every filed 1099-NEC with the contractor’s Schedule C.
If income is missing or underreported, the IRS typically issues a CP2000 notice.
This article is based on U.S. federal tax law applicable to the 2025 tax year.
State reporting rules and penalty structures may differ.
This content is for general educational purposes and does not constitute legal or tax advice.
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