Do You Have to File 1099-NEC With the State?

Businesses that pay independent contractors or freelancers $600 or more in a year must file Form 1099-NEC with the IRS. Some states also require businesses to submit this form for tax purposes, depending on where the business operates and where the contractor resides.

Mandatory State Filing Criteria

State requirements for filing Form 1099-NEC vary. Some states require direct submission to their tax agencies, while others participate in the IRS’s Combined Federal/State Filing Program (CF/SF), which forwards certain 1099 forms—but not always 1099-NEC—to participating states. As of 2024, California, New York, and Pennsylvania require direct filing, even if businesses use CF/SF for other forms.

Filing requirements often depend on tax withholding. If a business withholds state income tax from a contractor’s payments, it typically must file Form 1099-NEC with that state. North Carolina and Colorado require filing if withholding occurs, even for nonresident contractors. States without an income tax, such as Texas and Florida, do not require 1099-NEC filings.

Filing deadlines also differ. The federal deadline is January 31, but states set their own due dates. Massachusetts requires electronic submissions by January 31, while South Carolina allows paper filings until February 28. Penalties vary—New York fines start at $50 per form, while California escalates penalties to $110 per form after 30 days.

Multi-State Income Reporting

Hiring independent contractors across multiple states complicates tax reporting. Some states tax earnings based on where the work is performed, while others tax based on the contractor’s residency. A business may need to file in both the state where it operates and the state where the contractor resides.

For example, an Illinois company hiring a Georgia freelancer may need to report payments in both states. Illinois taxes income based on where the service is received, while Georgia taxes it based on where the work is performed. If the freelancer completes assignments in Georgia, the state may require a 1099-NEC filing, even if the client is in Illinois.

Some states require businesses to register for withholding accounts when paying nonresident contractors above a certain threshold. In Virginia, companies must withhold 5% of payments exceeding $5,000 to out-of-state contractors unless an exemption applies. Failing to withhold when required can result in additional tax liabilities.

Failure to Submit

Failing to file Form 1099-NEC with the state can lead to financial penalties, increased scrutiny, and potential audits. Many states impose fines based on how late the form is submitted. In California, missing the deadline by up to 30 days results in a $50 fine per form, increasing to $110 after that. Willful disregard can lead to penalties exceeding $270 per form.

Repeated noncompliance may trigger audits. State tax agencies cross-reference 1099-NEC filings with business tax returns to verify reported expenses. If a business fails to file, discrepancies may prompt further investigation. New York tax authorities use data-matching programs to detect unreported contractor payments, which can lead to additional tax assessments and interest charges.

Failing to file can also impact independent contractors. Many states use 1099-NEC data to verify income tax filings. If payments are not reported, contractors may face difficulties proving income or encounter additional tax scrutiny.

Exemptions

Some businesses are exempt from filing Form 1099-NEC with certain states based on industry classification, payment type, or entity structure. Government agencies, nonprofit organizations, and some financial institutions often qualify for exemptions. In Connecticut, tax-exempt entities under IRC Section 501(c)(3) generally do not need to file 1099-NEC forms unless state withholding applies.

The type of payment can also determine filing requirements. Many states exclude payments made through third-party processors, such as PayPal or Stripe, from 1099-NEC reporting. These transactions are typically reported on Form 1099-K instead, shifting the reporting responsibility to the payment processor. States like Minnesota and Missouri follow this federal rule, while Maryland imposes additional reporting requirements on payment facilitators, meaning businesses may still need to file in some cases.