Form 1099-NEC Compliance: Essential Considerations for Businesses

Proper issuance of Form 1099-NEC remains a critical compliance obligation for

entities engaging independent contractors. For the 2025 tax year, any business that pays $600 or more to a non-employee for services must furnish each qualifying payee with a Form 1099-NEC. Failure to meet this requirement may not only trigger significant monetary penalties but may also result in the disallowance of associated business deductions. 

Filing Deadlines and Scope of Obligation 

Forms 1099-NEC for 2025 must be provided to recipients and filed with the Internal Revenue Service by February 2, 2026. The due date, typically January 31, is adjusted to the next business day when it falls on a weekend. 

This obligation extends beyond standard contractor arrangements. Landlords seeking to claim the Section 199A qualified business income deduction should review their responsibilities. Under current IRS guidance, reporting payments to independent contractors on Form 1099-NEC is advised for activities treated as a trade or business, a shift from prior practices for rentals historically regarded as investments. 

The Role of Form W-9 in Compliance 

Effective compliance begins with timely collection of accurate information. It is essential to secure a completed and signed IRS Form W-9 from each unincorporated service provider prior to initiating services, regardless of anticipated compensation. This document captures legal name, address, business entity classification, and Taxpayer Identification Number (TIN), serving as documentation of due diligence in the event of an audit or dispute. 

Maintaining current Form W-9 records for all vendors not only protects against inadvertent non-compliance but also verifies adherence to federal requirements, even in cases where a contractor supplies erroneous data. The W-9 is intended exclusively for internal record keeping and is not filed with the IRS. Only the March 2024 revision should be utilized, replacing any previous versions. 

It should be noted that these 1099-NEC reporting provisions do not apply to household employees, who are subject to distinct payroll reporting requirements. 

Consequences of Non-Compliance 

The IRS imposes penalties for late or non-filed Form 1099-NEC, ranging from $60 to $340 per form for the 2025 reporting year, escalated by the delay in submission. Willful disregard of the filing requirement increases the minimum penalty to $680 per return with no upper limitation. 

Steps to Mitigate Potential Penalties 

When a contractor’s TIN is not available, adherence to the following remedial procedures is advised: 

• Document Solicitation Attempts: Initiate and record at least three separate requests for the TIN by verifiable means, such as email or certified correspondence. 

• Implement Backup Withholding: In the absence of a valid TIN, backup withholding at a 24% rate must be applied to future reportable payments and promptly remitted to the IRS. 

• Manual Paper Filing: If a TIN is still not obtained by the applicable deadline, submit Form 1099-NEC by paper, indicating "Refused" in the TIN field. 

• Timely Response to IRS Inquiries: Furnish evidence of compliance efforts in response to any subsequent IRS correspondence regarding missing or invalid identification numbers. 

  
  

Filing Mechanisms and Legislative Developments 

State requirements for Form 1099-NEC may differ. Certain jurisdictions participate in the Combined Federal/State Filing program, while others mandate direct state-level submission. 

Federal law now requires entities to file 10 or more information of returns (of any type, in aggregate) within a calendar year to do so electronically. Entities under this threshold may submit paper forms, provided they utilize the requisite machine-readable versions. 

Pursuant to the One Big Beautiful Bill Act, the Form 1099-NEC reporting threshold will increase to $2,000 for payments made in the 2026 tax year. Notwithstanding this adjustment, best practice dictates continued collection of Form W-9 from all independent contractors and service providers to maintain compliance with readiness. 

For guidance on Form 1099-NEC preparation or further clarification on regulatory requirements, professional consultation is recommended.