Filing 1099-NEC forms is an important part of reporting payments to non-employees. While most payments require filing only if they reach a certain threshold, there are situations where the threshold does not matter. Understanding these exceptions helps businesses stay organized and compliant with IRS reporting requirements. This article shares practical information for those using IRS-authorized 1099 filing solutions like Form1099Online.com.
Table of Contents
1099-NEC Exceptions: Situations Where Thresholds Don’t Apply
1. Backup Withholding and Missing TINs
If a payee’s Taxpayer Identification Number (TIN) is missing or incorrect, the IRS requires a 1099-NEC to be filed regardless of the payment amount. Backup withholding of 24% may apply, and the payment must be reported to ensure IRS records are accurate.
2. Direct Sales Rule Over $5,000
Payments for consumer products sold for resale over $5,000 must be reported on a 1099-NEC, no matter the usual threshold. This direct-sales exception ensures that large sales are documented properly for IRS purposes.
3. Attorney-Fee Payments
Payments to attorneys for legal services must be reported even if the attorney is incorporated. Normally, payments to corporations are exempt from 1099-NEC reporting, but the attorney-fee exception overrides this rule.
How to Stay Compliant with 1099-NEC Filing
Here are some key steps businesses can take to simplify 1099 NEC filing:
- Collect a completed W-9 from every contractor or payee.
- Verify the TIN in real time using a secure tool like Form1099Online.com before making payments.
- Track all payments to each payee to monitor thresholds throughout the year.
- Identify any payees subject to 24% backup withholding.
- Send copies of the 1099-NEC to recipients and e-file with the IRS by January 31.
- Maintain records for at least three to four years.
- Use IRS Form 8809 to request a 30-day extension if needed.
Practical Examples of When 1099-NEC Filing is Required
| Payment Scenario | Filing Required? | Reason for Filing |
|---|---|---|
| Designer billed three times $250 each ($750 total) | Yes | Total payments for the year exceed the $600 threshold |
| Single $550 payment with 24% backup withholding | Yes | Backup withholding requires reporting regardless of amount |
| Sold $5,500 in starter-kit inventory to a reseller | Yes | Direct-sales rule applies for payments over $5,000 |
| $650 paid to an incorporated law firm for legal services | Yes | Attorney-fee exception overrides the corporate exemption |
| $1,800 paid to a contractor in July 2026 | No | Payment is below the $2,000 threshold effective in 2026 |
Conclusion
Even if payments are below the usual threshold, exceptions like backup withholding, direct sales, and attorney fees require 1099 NEC reporting. Using an IRS-authorized platform like Form1099Online.com can make filing simple, provide real-time TIN verification, and help maintain proper records.