For many business owners in Florence, fall is when contractor payments are still easy to trace. The work is done, the check has cleared, and the legal name is somewhere in an email. January is a poor time to go looking for it.
This article is general information about information returns for payments made in 2026. It is not tax advice for a particular business.
Who gets a 1099-NEC, and who gets a 1099-MISC
Both forms report payments made in the course of a trade or business. A personal payment stays off both forms. Wages to an employee belong on Form W-2.
Form 1099-NEC reports nonemployee compensation. For payments made in 2026, file it when you paid at least $2,000 for services by someone who is not your employee, including parts and materials that were part of the service. Attorney fees of at least $2,000 go on this form too, including fees paid to a law firm that is a corporation.
Form 1099-MISC covers other business payments. For 2026, the $2,000 amount also applies to rent, prizes and awards, other income, and medical and health care payments. Royalties stay at $10. Gross proceeds paid to an attorney — a settlement or similar amount paid to the firm, rather than the lawyer’s fee — stay at $600, in box 10. The fee itself stays on Form 1099-NEC.
Before 2026, those $2,000 categories followed a $600 rule. The One, Big, Beautiful Bill Act raised the threshold, and the IRS instructions for the 2026 forms set it at $2,000 for tax years beginning after 2025. Payments after 2026 use the inflation-adjusted amount in IRS Publication 1099. If you withheld federal income tax under backup withholding, file even when the payment is under that amount.
Payments for merchandise alone stay off both forms.
The January 31 deadline
Form 1099-NEC is due January 31, to the person you paid and to the IRS, on paper or electronically. January 31, 2027 is a Sunday, so that federal due date moves to Monday, February 1, 2027, for the recipient copy and the IRS filing. Form 1099-NEC has no automatic extension.
Form 1099-MISC uses a later date for the IRS copy. In most cases, give the recipient a copy by January 31, and file with the IRS by February 28 on paper or March 31 electronically. February 28, 2027 is a Sunday, so a paper filing is due March 1, 2027. Gross proceeds paid to an attorney are due to the recipient by February 15.
If you have 10 or more information returns, counting Forms W-2, file them electronically.
Collect Form W-9 now
Form W-9 gives you the legal name, address, taxpayer identification number, and federal tax classification. Request it before the first payment, or before December 31 if you do not have one yet. The name on the form has to match the number.
Most payments to a corporation stay off Form 1099-NEC. So do payments to an LLC taxed as a C corporation or an S corporation. Attorney fees are still reported, and medical and health care payments are still reported on Form 1099-MISC. A partnership, or an LLC taxed as a partnership or a disregarded entity, is generally reported once the payments reach the threshold. Read the classification box on the W-9. The letters LLC in a name do not decide it.
Cards and PayPal
Amounts paid by credit card, debit card, or a third-party network such as PayPal are reported on Form 1099-K by the payment settlement entity. Leave them off Form 1099-NEC and Form 1099-MISC. Total what you paid by check, cash, or a direct bank transfer. That is the amount for your form. Keep the card totals in the vendor file.
Backup withholding
Backup withholding is federal income tax of 24% that you hold back from a reportable payment and send to the IRS. A missing taxpayer identification number is the common trigger. A notice that the name and number do not match is the other. On nonemployee compensation, “applied for” does not pause the withholding. Deposit the tax with Form 945, report it in box 4 of the 1099, and file that form even when the payment is below the usual threshold.
Penalties
A late, missing, or incorrect form can bring a penalty if you cannot show reasonable cause. The IRS charges separately for its copy and for the recipient’s copy. The amount is per form and rises the longer the form stays open. A missing or wrong taxpayer identification number, and a wrong dollar amount, are the errors that count. Intentional disregard is higher and has no cap.
Alabama
Alabama’s amount for these payments is $1,500. A resident payer in a trade or business must give the recipient a Form 1099, and file a copy with the Alabama Department of Revenue, when nonwage payments of $1,500 or more are taxable to Alabama. A payment under $2,000 can still be reportable to Alabama. The combined federal/state program forwards only forms you file with the IRS.
Give the recipient the statement by January 31. File the state copy by March 15, unless you voluntarily withheld Alabama income tax. That withholding is allowed and optional. If you withheld, file the forms with Form A-3 by January 31 through My Alabama Taxes. Those forms stay out of the combined program. With no Alabama tax withheld, the combined program can replace paper, and Alabama does not require separate approval. Paper copies go to the Alabama Department of Revenue, P.O. Box 327489, Montgomery, AL 36132-7489. The $1,500 amount is in Administrative Code rule 810-3-26-.01 and the Department’s 2026 withholding instructions. Confirm both before you file.
A simple checklist
List the payees. Contractors, landlords, attorneys, and medical providers paid in the business. Employees stay on Form W-2.
Split the method. Set card and third-party network payments aside. Total checks, cash, and direct bank transfers.
Compare the totals. Use $2,000 for the federal forms above, and $1,500 for Alabama.
Get a Form W-9. Match the legal name to the number, and read the tax classification.
Plan for a missing number. Near the threshold with no taxpayer identification number, prepare to withhold 24% and deposit it on Form 945.
Mark the dates. February 1, 2027 is the federal due date for Form 1099-NEC, to the recipient and to the IRS. March 15 is Alabama’s date when you file the state copy yourself and did not withhold Alabama tax.
A record kept with care
Finances are one of the tools business owners are trusted to manage. A true name, a true number, and a form filed when it is due are part of faithful stewardship.
Benford Consulting helps individuals and business owners with tax preparation, bookkeeping, and tax planning, with wisdom, clarity, and integrity.
Next step
If you want help sorting contractor payments before January, request a consultation. You can also email kolby@benfordcpa.com with a short note about the forms you expect to file.
There is no obligation in a first conversation. The goal is a clean set of forms, and a year closed with care.