1099-NEC vs. 1099-MISC

Written By Pamela Oppenheimer

1099-NEC vs. 1099-MISC (and Special Rules for Lawyers)

If you pay contractors, freelancers, vendors, or attorneys, chances are you may need to issue a 1099. Every year, confusion around 1099s leads to mistakes, penalties, and IRS notices. The two most common forms are 1099-NEC and 1099-MISC, and knowing when to use each one is critical. Below are the most important 1099 tips every business owner should understand.

1099-NEC (Nonemployee Compensation)

Use for payments for services.

Examples:

  • Contractors and freelancers

  • Consultants and professionals

  • Legal fees paid to attorneys

👉 Generally required when $600 or more is paid for services (except attorneys — see below).

1099-MISC

Use for non-service payments, such as:

  • Rent

  • Royalties

  • Prizes and awards

  • Legal settlement proceeds paid to attorneys

Who Does Not Get a 1099

You generally do not issue 1099s to:

  • C Corporations

  • S Corporations

  • S-elected LLCs

  • Nonprofit organizations

Most 1099s go to individuals, sole proprietors, single-member LLCs, and partnerships.

💡 Always collect a W-9 before paying a vendor to confirm their status.

Services vs. Products

If a vendor charges for both services and products, only the service portion is reported.

Example:

  • $1,500 services

  • $700 products

✅ Report $1,500 on 1099-NEC
❌ Do not include product costs

How the Payment Was Made Matters

Payments that DO count:

  • Cash

  • Checks

  • ACH / bank transfers

  • Zelle

  • Direct app payments (non-processor)

Payments that usually do NOT require a 1099 from you:

  • Credit cards

  • Debit cards

  • PayPal, Stripe, Square, and other processors

👉 These platforms issue their own tax form (typically 1099-K).

Special Rules for Attorneys

Attorney payments follow different rules.

No $600 Threshold

Any payment to an attorney requires a 1099 — regardless of amount, as long as they are not a C corp, S corp, or S-elected LLC.

Which Form to Use for Lawyers

  • Legal fees → 1099-NEC

  • Settlement proceeds → 1099-MISC, Box 10 (Gross Proceeds Paid to an Attorney)

Quick Takeaways

  • 1099-NEC = services (including legal fees)

  • 1099-MISC = rent, settlements, misc payments

  • No 1099s for C corps, S corps, S-elected LLCs, or nonprofits

  • Report services only — not products

  • Processor payments are excluded

  • Cash, checks, ACH, and Zelle still count

  • Attorneys always require a 1099

  • Collect a W-9 every time

Pamela Oppenheimer