Reporting Non-Employee Compensation – 2025 Update
Form 1099-NEC Compliance Under the One Big Beautiful Bill Act
Beginning with payments made in 2020, businesses must report non-employee compensation using Form 1099-NEC (Nonemployee Compensation), rather than Box 7 of Form 1099-MISC. This form is used to report payments of $600 or more to independent contractors, freelancers, and other service providers.
What’s New Under the One Big Beautiful Bill Act (OBBBA)
- The $600 reporting threshold remains in place for 2025
- Starting in 2026, the threshold will increase to $2,000, with annual inflation adjustments beginning in 2027
- Backup withholding rules will also follow the new threshold beginning in 2027
- These changes aim to reduce administrative burden for businesses and improve reporting clarity
Who Must File Form 1099-NEC?
You must file Form 1099-NEC if you paid $600 or more in 2025 to a non-employee for services in the course of your trade or business. This includes:
- Independent contractors
- Freelancers
- Consultants
- Vendors providing services (e.g., maintenance, accounting, design)
Rental property owners must also report payments of $600 or more to service providers if the activity qualifies as a trade or business.
Exceptions to Reporting
You do not need to file Form 1099-NEC for:
- Payments to corporations (except for attorneys and medical providers)
- Payments made via credit/debit cards or third-party processors (reported by the processor on Form 1099-K)
- Payments under $600 per vendor
- Payments for personal-use property or services
Step-by-Step Guide to 1099-NEC Compliance
1. Obtain an EIN (Optional but Recommended)
- Helps protect your SSN and streamline IRS filings
- Apply online at IRS.gov
2. Collect Vendor Information
- Request a completed Form W-9 from each vendor
- Ensure accurate name, address, TIN (SSN or EIN), and business type
- Best practice: collect W-9s before issuing payments
3. Track Payments Accurately
- Maintain detailed records of payments made for services
- Separate service payments from goods or reimbursements
- Exclude personal-use transactions
4. File Form 1099-NEC on Time
- Copy B to recipients: Due January 31, 2026
- Copy A to IRS:
- Paper filing: Due February 28, 2026
- E-filing: Due March 31, 2026
- Use official IRS scannable forms for paper filing or approved e-file software
Need Help?
Proper planning and documentation ensure smooth compliance. If you have questions about your reporting obligations or need help preparing Forms 1099-NEC, we’re here to assist.