Every client that pays vendors, landlords, attorneys or independent contractors has Form 1099 obligations, and every audit or review of such a client brushes against them: the vendor master file, expense accounts labeled "contract labor," and a liability exposure if returns were never filed. This page sets out the thresholds, deadlines and penalties from the IRS, the backup withholding mechanics, and where a finance team or practitioner can test compliance.
The thresholds changed for 2026. Check the payment year before you apply a number.
What are the 1099-NEC and 1099-MISC thresholds?
The IRS "Am I required to file" page and the Instructions for Forms 1099-MISC and 1099-NEC give:
| Form and payment | Threshold |
|---|---|
| 1099-NEC, nonemployee compensation (services, including payments to attorneys) | $600 for payments before 2026; $2,000 for 2026 |
| 1099-MISC, rents | $2,000 for tax years beginning after 2025 |
| 1099-MISC, other income | $2,000 for tax years beginning after 2025 |
| 1099-MISC, royalties | $10 |
| 1099-MISC, gross proceeds paid to an attorney | $600 |
| 1099-MISC, direct sales of consumer products for resale | $5,000 |
The $2,000 amount may be adjusted for inflation beginning in calendar year 2027. Some categories keep their original thresholds, such as the $10 for royalties, $600 for attorney gross proceeds and $5,000 for direct sales.
Three rules cut across the table:
- Corporations. Payments to corporations are generally exempt from 1099-NEC reporting. The exemption does not cover payments for legal services.
- Card payments. Payments made by credit card or through a third-party network are reported by the payment settlement entity on Form 1099-K, not on 1099-MISC or 1099-NEC.
- Backup withholding. A payer that withheld federal income tax files the form regardless of the amount paid, and reports the amount in box 4.
When are the forms due?
For 2026 returns, the Instructions say:
- Form 1099-NEC: furnish recipient statements and file with the IRS by January 31.
- Form 1099-MISC: furnish recipient statements by January 31; file with the IRS by February 28 on paper or March 31 electronically.
- When a due date falls on a Saturday, Sunday or legal holiday, it moves to the next business day.
A payer must file electronically if it files 10 or more information returns in total, aggregating all types. That threshold applies to returns required to be filed on or after January 1, 2024 (T.D. 9972).
What are the penalties for late or missing returns?
The IRS publishes per-return penalties by due year:
| Filing delay | Returns due in 2026 | Returns due in 2027 |
|---|---|---|
| Up to 30 days late | $60 | $60 |
| 31 days late through August 1 | $130 | $130 |
| After August 1 or not filed | $340 | $340 |
| Intentional disregard | $680 | $690 |
Annual maximums apply to all but intentional disregard. For returns due in 2026 the maximums for small businesses are $239,000, $683,000 and $1,366,000 across the three tiers; for large businesses $683,000, $2,049,000 and $4,098,500. For returns due in 2027, small business maximums are $244,500, $698,500 and $1,397,000, and large business maximums are $698,500, $2,095,500 and $4,191,500.
What is the Form 1099-K threshold?
The IRS says payment apps and online marketplaces report when the total of payments received for goods or services through the platform exceeds $20,000 in more than 200 transactions. A payee may receive a 1099-K below that level. For a client that sells through a platform, the 1099-K is a reconciliation item against revenue; it is not a measure of what the client must report.
How does backup withholding work?
Backup withholding is a flat 24% on reportable payments. The IRS lists the triggers for a payee:
- The payee does not give the payer a taxpayer identification number (TIN) in the required manner.
- The IRS notifies the payer that the TIN the payee gave is incorrect.
- The IRS notifies the payer to start withholding on interest or dividends because of underreporting, after the IRS has sent four notices over at least 120 days.
- The payee fails to certify that it is not subject to withholding for interest and dividend underreporting.
IRS Publication 1281 sets out the B notice process when the IRS sends a CP2100 or CP2100A notice about a missing or incorrect name and TIN:
- First B notice. Send it with a Form W-9 within 15 business days of the date of the CP2100 or CP2100A notice or the date received, whichever is later. Date it no later than 30 business days after that. If the payee does not return a signed Form W-9, begin withholding no later than 30 business days after the notice date. Stop within 30 calendar days of receiving the signed W-9.
- Second B notice (when the IRS notifies you a second time within three calendar years). Send it within 15 business days without a W-9. An individual payee must return a copy of a Social Security card showing the correct name and SSN, and an EIN holder must obtain IRS Letter 147C. The payer allows 30 business days after the second notice date, then begins withholding if the validation has not arrived, and continues until it arrives.
Pub. 1281 also notes that payers of income reported on Forms 1099-B, DIV, INT, K, MISC, NEC, OID, G and PATR may be eligible to use the IRS TIN Matching program.
Amounts withheld are deposited and reported through Form 945, and the payee claims the credit from the Form 1099. The payee's TIN is not collected by phone for a B notice; Pub. 1281 states that the name and TIN may not be solicited by telephone.
Illustration (illustrative)
A client paid five vendors in 2026 and the finance team is asked which need a 1099-NEC.
- Vendor A, a sole proprietor, received $2,000 from the client for consulting. At least $2,000, so the client files.
- Vendor B, a sole proprietor, received $1,999. Under the 2026 threshold, so no filing absent backup withholding.
- Vendor C, an S corporation design studio, received $15,000. Payments to corporations are generally exempt, so no filing.
- Vendor D, a corporate law firm, received $5,000 for legal services. The corporation exemption does not cover legal services, so the client files.
- Vendor E, a freelancer who never returned a Form W-9, was paid $3,000. If the client withheld 24%, the withholding is $3,000 x 0.24 = $720, and it files a 1099-NEC with $720 in box 4 whatever the amount.
The same client, if it had made the Vendor B payment in 2025, would have filed at the $600 threshold. A test that applies a single threshold to both years is wrong for one of them.
How do auditors and finance teams test compliance?
Information return compliance is a client tax compliance matter and is not itself a required audit procedure. It does matter when:
- Unfiled returns create an unrecorded penalty exposure that may need an accrual or disclosure. See ASC 450 loss contingencies.
- The vendor master lacks W-9s or TINs, which is also a control observation for the management letter.
- Expense accounts show contractor payments, payroll and 1099 classification questions arise.
Practical tests: compare the vendor master to a 1099 flag, sample vendors above $2,000 for a W-9 on file, and trace 1099 totals to the general ledger. Many clients process 1099s through their accounting software; the check is whether the software flags match the vendor's actual entity type.
Frequently asked questions
What is the 1099-NEC threshold for 2026?
$2,000, for payments to a person for services, per the IRS. Before 2026 it was $600. It may be adjusted for inflation starting in 2027.
Do I file a 1099-NEC for payments to an LLC?
Depends on its tax classification. An LLC taxed as a corporation is generally exempt except for legal services. An LLC taxed as a sole proprietorship or partnership is not exempt on that basis. The Form W-9 tells you which box the payee checked.
What is the backup withholding rate?
24%, applied to reportable payments when a payee fails to provide a TIN or the IRS notifies the payer that the TIN is incorrect, among other triggers.
When must I e-file 1099s?
If you file 10 or more information returns in total, aggregating all types, for returns required to be filed on or after January 1, 2024.
What is the penalty for not filing a required 1099 on time?
For returns due in 2026, $60, $130 or $340 per return depending on how late, and $680 for intentional disregard.
Sources
- IRS, "Am I required to file a Form 1099 or other information return?" https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return
- IRS, Instructions for Forms 1099-MISC and 1099-NEC: due dates, e-file threshold (T.D. 9972), $2,000 threshold, corporate exemption, attorney payments. https://www.irs.gov/instructions/i1099mec
- IRS, Information return penalties (returns due in 2026 and 2027). https://www.irs.gov/payments/information-return-penalties
- IRS, Topic no. 307, Backup withholding. https://www.irs.gov/taxtopics/tc307
- IRS, Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s). https://www.irs.gov/pub/irs-pdf/p1281.pdf
- IRS, Understanding your Form 1099-K. https://www.irs.gov/businesses/understanding-your-form-1099-k
Related
- Forms 1099 and W-2
- Section 7216 for tax return preparers
- ASC 450 loss contingencies
- Search for unrecorded liabilities
- Year-end close checklist
- Auditing a client on QuickBooks Online
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