Noncash compensation on 1099-NEC: barter, credits, in-kind work

Noncash Compensation Overview

Noncash or “in-kind” compensation includes anything of value given for services instead of money — such as barter, store credits, gift cards, merchandise, or other property. The IRS treats the fair market value (FMV) of whatever is received as taxable income. This rule applies whether the exchange is direct (you do work for someone and receive goods or services) or indirect (through a barter exchange).

For example, if you design a website for a restaurant and they give you $1,000 worth of meals, you must report $1,000 of income. The value of what you received is taxable just as if you had been paid in cash.

When It Belongs on Form 1099-NEC

Form 1099-NEC is used to report payments of $600 or more made to a nonemployee for services performed in the course of your business. If you pay someone in goods, store credits, or other noncash items for their work, you still report the FMV of what you gave on the 1099-NEC. The payment box should show the equivalent dollar value, not the physical item.

The same thresholds apply — once total payments (cash plus noncash) reach $600 or more for the year, you must issue a 1099-NEC. You would also include noncash payments when calculating how much to report to the contractor on their copy of the form.

Barter Exchanges vs. Direct Trades

If you’re using a barter exchange — a third-party network or website that facilitates trades and issues credits — then that exchange usually reports the transaction to both parties on Form 1099-B. In that case, you wouldn’t file a 1099-NEC yourself for that specific trade, because the barter exchange handles the reporting.

But if the barter is direct between two businesses or individuals (for example, you trade graphic design for landscaping), then each party must report the income themselves, and the business that received services would typically issue a 1099-NEC showing the FMV of what it provided as payment.

In-Kind or Credit-Based Payments

Noncash compensation also includes things like store credits, points, or gift cards that can be redeemed for goods or services. These are treated the same way as cash. The FMV of the credit or card is income to the recipient and counts toward the $600 threshold for a 1099-NEC.

If you give an employee these items, they go on a W-2 instead. But if you give them to an independent contractor, they are part of nonemployee compensation and reported on the 1099-NEC.

Practical Steps

1. Determine the fair market value of the goods, credits, or services given.
2. Add that value to any cash payments to see if the total reaches $600 or more.
3. Report that total amount on Form 1099-NEC under “Nonemployee compensation.”
4. Keep documentation showing how the value was determined and what the exchange involved.
5. Even if you don’t receive a 1099-NEC yourself, you must still report the fair market value of any barter or in-kind income on your own return.