What this line means
Payments you made to independent contractors who performed services for your business. This includes freelancers, subcontractors, and any other non-employee you hired. If you paid any single contractor $600 or more during the year, you are required to file a 1099-NEC for them. This line covers the total of all contract labor payments regardless of the amount per contractor.
Does this apply to you?
- You hired a freelance designer, developer, writer, or photographer for a project
- You subcontracted work to another business or tradesperson
- You paid a virtual assistant or bookkeeper who is not your employee
- You hired day laborers, cleaning crews, or maintenance workers as independent contractors
Easy to overlook
You must file 1099-NECs for contractors paid $600+ Paying a contractor is the easy part. The IRS also requires you to file a Form 1099-NEC for every individual or non-corporate entity you paid $600 or more. The 1099-NEC is due to the contractor by January 31 and to the IRS by January 31. Missing this deadline triggers penalties starting at $60 per form. Many sole proprietors do not realize they have this filing obligation. 1 IRS Form 1099-NEC filing requirements
Worker classification matters If the IRS reclassifies someone you called a contractor as an employee, you owe back payroll taxes (employer share of Social Security and Medicare), penalties, and potentially the worker’s unpaid income tax withholding. The distinction hinges on control — do you control how the work is done, or only the result? If you set their hours, provide their tools, and direct their daily work, they are likely an employee. 2 IRS Schedule C instructions — Line 11
Watch out for this
Not collecting a W-9 from contractors before paying them. Without a W-9, you do not have the contractor’s taxpayer identification number, which means you cannot file the required 1099-NEC. Collecting W-9s upfront — before the first payment — prevents a scramble at year-end when contractors are hard to reach.
Footnotes
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IRS Instructions for Form 1099-NEC, Filing Requirements. https://www.irs.gov/instructions/i1099nec ↩
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IRS Schedule C (Form 1040) Instructions, Line 11. https://www.irs.gov/instructions/i1040sc ↩