Certain types of payments and recipients are exempt from receiving Form 1099-NEC (Nonemployee Compensation). In general, you don’t need to issue this form when payments fall into the categories below. However, always review the exceptions to ensure compliance.
1. Payments to Corporations
Most payments made to C corporations and S corporations are exempt. However, there are specific exceptions, including:
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Legal services (reportable regardless of corporate status).
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Payments for medical and healthcare services.
2. Payments Made for Non-Services
Payments for physical goods, merchandise, or equipment are not reported on Form 1099-NEC. In other words, only payments for services count.
3. Employee Payments
Compensation for employees belongs on Form W-2, not Form 1099-NEC. Therefore, only nonemployees—such as contractors—fall under the 1099-NEC rules.
4. Personal Payments
If you make payments for personal purposes (not part of a trade or business), those payments are not reportable. For example, hiring a neighbor to mow your lawn would not trigger a 1099-NEC.
5. Payments to Tax-Exempt Entities
Organizations that qualify as tax-exempt under IRC Section 501(c) do not require a 1099-NEC. As a result, charities and certain nonprofits are excluded.
6. Payments Made by Credit Card or Payment Platforms
Payments made through third-party payment networks (such as PayPal, Venmo for business transactions, or credit card processors) are reported on Form 1099-K instead.
7. Minimal Payments
If total payments to a nonemployee are less than $600 in a calendar year, a 1099-NEC is not required. Consequently, small one-time transactions often do not meet the filing threshold.
8. Payments for Rent or Other Non-Service Income
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File rent payments on Form 1099-MISC, not on Form 1099-NEC.
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Likewise, report non-service payments such as prizes, awards, royalties, and fishing boat proceeds on 1099-MISC.
Special Cases to Consider
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Payments to foreign individuals or entities are usually exempt unless they have a U.S. trade or business and meet specific filing requirements.
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Always verify whether the payee qualifies as a contractor or another category to avoid misclassification.