Minimum Pay for Independent Contractors to Receive a 1099

Independent contractors are self-employed individuals or businesses providing services to clients under a contract. They maintain control over their work methods and manage their own income and self-employment taxes. A Form 1099 serves as an information return, documenting payments made for services performed outside of an employer-employee relationship. This form helps the Internal Revenue Service (IRS) track income that has not had taxes withheld, ensuring proper reporting by the independent contractor.

The Standard Reporting Threshold

Businesses must generally issue a Form 1099-NEC (Nonemployee Compensation) when they pay an independent contractor $600 or more for services in a calendar year. This threshold is a reporting requirement for the payer, helping the IRS monitor payments to non-employees.

Independent contractors are responsible for reporting all income earned on their tax returns, even if total payments from a single payer are less than $600. For example, if a contractor earns $300 from one client, that income is still taxable, even without a 1099-NEC. The IRS requires all income to be declared, regardless of whether a reporting form is issued.

The current 1099-NEC threshold of $600 will increase to $2,000 for the 2026 tax year, due to legislation enacted on July 4, 2025. For 2027 and subsequent years, this threshold will be adjusted for inflation. This change aims to reduce reporting obligations for many businesses and individuals.

Payments Included in the Threshold Calculation

The $600 reporting threshold for Form 1099-NEC includes various forms of nonemployee compensation, such as fees, commissions, prizes, and awards for services. This includes payments to graphic designers, writers, consultants, or gig workers.

Payments for professional services, such as those made to attorneys, accountants, architects, and engineers, also contribute to this threshold. These amounts are aggregated by the payer throughout the calendar year to determine if the $600 limit is met.

Certain payments are generally excluded from 1099-NEC reporting. Payments made to corporations, including limited liability companies (LLCs) treated as C or S corporations, are typically exempt unless for legal services. Payments for merchandise, telegrams, telephone, freight, and storage are also usually exempt. Additionally, payments made through credit card, debit card, or third-party payment networks like PayPal are generally reported by the financial institution on Form 1099-K, not by the payer on a 1099-NEC.

Relevant 1099 Forms for Independent Contractors

For independent contractors, Form 1099-NEC (Nonemployee Compensation) is the primary form for reporting payments. This form reports payments of $600 or more for services performed by nonemployees. It was reintroduced by the IRS for the 2020 tax year.

Before 2020, nonemployee compensation was generally reported on Form 1099-MISC (Miscellaneous Information). While Form 1099-MISC still exists, its current use for independent contractors is limited. It is now primarily used for reporting other types of miscellaneous income, such as rents, royalties, prizes, awards, and certain medical and healthcare payments.

If an independent contractor receives at least $600 for services, the payer should issue a Form 1099-NEC. If payments are for other income types not related to services, such as rent, a Form 1099-MISC might be issued instead.

What to Do If a 1099 Is Not Received

If an independent contractor expects to receive a Form 1099-NEC but does not, the first step is to contact the payer directly. Payers are generally required to send out 1099 forms by January 31 following the calendar year in which the income was paid.

If the payer is unable or unwilling to provide the form, the contractor is still obligated to report all income on their tax return. This income is typically reported on Schedule C (Form 1040), Profit or Loss from Business. Independent contractors must maintain accurate records, such as invoices, receipts, and bank statements, to determine their total income.

In situations where a 1099-NEC cannot be obtained, taxpayers can use Form 4852, Substitute for Form W-2 or 1099-R, to estimate their income and tax withheld. If no federal or state tax was withheld, the income can be entered directly on Schedule C without Form 4852.