1099-NEC vs 1099-MISC: Which Form for Which Payment in Construction
Through 2019, all third-party non-employee payments flowed through IRS Form 1099-MISC. Starting tax year 2020, the IRS split off nonemployee compensation into its own form — 1099-NEC — leaving 1099-MISC for everything else. The two forms use different boxes, have different filing deadlines, and have their own sets of use cases.
For construction AP, the split affects how year-end 1099 reporting is structured. Most subcontractor payments, once reported in Box 7 of 1099-MISC, now go in Box 1 of 1099-NEC. Some payments that look similar — rent paid to landlords, certain legal settlements, prize money — still go on 1099-MISC. Knowing which is which matters because the penalties for wrong-form filings apply even when the dollar amounts are correct.
1099-NEC reports payments of $600 or more made in the course of a trade or business to a non-employee for services. In construction, this is the default form for subcontractor payments and other service-based vendor payments.
Payments typically reported on 1099-NEC (Box 1)
- Subcontractor labor and services — cleaning, specialty trades, consultants, operators, temporary labor
- Independent contractor payments — architects, engineers, estimators, surveyors working as independents
- Services from unincorporated businesses (sole proprietors, LLCs taxed as pass-throughs) over $600 per year
- Commissions paid to non-employees
- Fees paid to directors and non-employee advisors
The $600 threshold is calculated per vendor per year. A subcontractor paid $400 for one job and $300 for another later in the year crosses the threshold at $700 total and gets a 1099-NEC. A subcontractor paid $500 and nothing else that year stays under $600 and doesn't require a 1099.
1099-MISC still exists and handles the other payment types that used to live alongside nonemployee compensation before the split. In construction, the common 1099-MISC scenarios are:
Payments typically reported on 1099-MISC (various boxes)
- Rent paid to landlords and equipment lessors over $600 — Box 1
- Royalty payments — Box 2
- Other income — Box 3 (catch-all for prizes, awards, and certain other payments not otherwise classified)
- Federal income tax withheld under backup withholding — Box 4
- Medical and health care payments — Box 6 (typically not applicable to construction)
- Gross proceeds paid to an attorney for legal settlements — Box 10 (different from attorney's fees, which go on 1099-NEC)
- Crop insurance proceeds — Box 9 (not applicable to construction)
Rent is the most common 1099-MISC scenario in construction. A contractor who rents office space, yard storage, or equipment from an unincorporated landlord at over $600 per year files a 1099-MISC for the rent, not a 1099-NEC.
Attorney payments are a nuanced area. Fees paid to attorneys for services (a contract review, a legal opinion, defending a lawsuit) go on 1099-NEC in Box 1 as nonemployee compensation. Gross proceeds paid to attorneys in connection with legal services — typically settlement payments where the attorney is receiving a check on behalf of the client — go on 1099-MISC in Box 10.
The distinction matters in construction litigation. A settlement paid directly to an attorney's trust account for disbursement to a claimant goes on 1099-MISC Box 10. The legal fees portion of a retainer paid directly to the attorney for their services goes on 1099-NEC Box 1.
When a contractor settles a construction dispute by paying the opposing attorney's firm in trust for the claimant, the 1099-MISC Box 10 applies to the gross proceeds. The attorney's own fees portion (if separately identified) still go on 1099-NEC.
Some payments don't require a 1099 at all:
Payments exempt from 1099 reporting
- Payments to C corporations and S corporations (with limited exceptions — attorney payments are reported even to corporations)
- Payments for merchandise, freight, and storage
- Payments under $600 total to the vendor for the calendar year
- Payments to tax-exempt organizations
- Payments to employees (which go on W-2, not 1099)
- Payments made via credit card or third-party payment networks — reported by the payment processor on 1099-K, not by the contractor on 1099-NEC
The credit card exception is important. A subcontractor paid via company credit card or a third-party service (e.g., payment platforms like Venmo for Business, though rarely used for contractor payments) shouldn't also get a 1099-NEC from the contractor — the payment processor files 1099-K for that activity. Duplicate reporting can happen if the contractor doesn't exclude credit card payments from their 1099 run.
Accurate 1099 filing depends on accurate vendor information — legal entity name, tax identification number, entity type. This information comes from Form W-9, which every vendor expected to receive a 1099 should complete before the first payment. Construction AP teams typically require a completed W-9 before any vendor can be paid.
The W-9 identifies whether the vendor is a corporation (exempt from 1099-NEC except for attorneys), a partnership or LLC (reportable), or a sole proprietor (reportable). It also provides the TIN used on the 1099. Missing or incorrect W-9s lead to missed 1099s or incorrect ones, both of which carry penalties.
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Filing Deadlines
1099-NEC has an earlier deadline than 1099-MISC. For tax year 2026 (reporting 2026 activity), 1099-NEC must be filed with the IRS and provided to the recipient by January 31, 2027. 1099-MISC has the same January 31 deadline for recipient copies, but the IRS filing deadline is February 28 for paper filings or March 31 for electronic filings.
The difference in IRS filing deadlines matters because 1099-NEC's January 31 deadline is tight — only 31 days after year-end. Preparation usually starts in December with vendor-by-vendor review of paid amounts, W-9 status, and any backup withholding. By mid-January, the 1099-NEC file should be ready to transmit.
IRS penalties for 1099 errors stack by form and by year. For tax year 2026, typical penalties are:
1099 error penalties (as of recent years, subject to change)
- Filed within 30 days of deadline — $60 per form
- Filed by August 1 after original deadline — $120 per form
- Filed after August 1 (including intentional disregard) — $310 per form, potentially higher
- Intentional disregard — $630+ per form, no maximum
For a contractor filing 200 1099-NEC forms, a 30-day late filing is $12,000 in penalties. Beyond August 1, the same 200 forms are $62,000. For intentional disregard, there's no upper limit. These penalties are why year-end 1099 preparation is typically a structured process that starts months in advance.
When the IRS sends a B-notice indicating a vendor's TIN doesn't match its records, the contractor is required to start backup withholding (24% of future payments) until the vendor provides a corrected W-9. Backup withholding amounts are reported on 1099-NEC or 1099-MISC in Box 4 (and separately to the IRS on Form 945).
Ignoring B-notices triggers penalties on the contractor separate from 1099 filing penalties. The correct response to a B-notice is immediate: withhold on future payments, solicit a corrected W-9 from the vendor, and document the process.
Joint check payments have specific 1099 rules. When a joint check is paid to a sub and their supplier, each party's share is potentially reportable based on whether each is unincorporated and over the threshold. Back-charges against subs reduce the 1099 amount to the net paid, not the gross. Retention payments that cross year-ends are reportable in the year actually paid.
For equipment rental paid to incorporated rental houses (most national chains), no 1099 is required even on substantial rent — the corporate exception applies. For rent paid to an unincorporated landlord or an individual property owner, the 1099-MISC (not NEC) is required.
Since 2020, the 1099-NEC handles nonemployee compensation while 1099-MISC handles rent, legal settlements, prizes, and certain other payments. For construction AP, most subcontractor and service vendor payments go on 1099-NEC; rent paid to unincorporated landlords goes on 1099-MISC. Accurate W-9 collection, clean vendor classification, and an early-January filing discipline keep the process manageable. The penalties for errors stack quickly enough to justify the upfront effort on W-9s and classification.
Written by
Jordan Patel
Compliance & Legal
Former corporate counsel specializing in construction contracts and tax compliance. Writes about the documentation layer — COIs, W-8/W-9, certified payroll, notice-to-owner deadlines — and the legal backbone behind audit-ready AP.
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