1099-NEC vs 1099-INT: Which Form Should You File in 2025

When to report contractor payments, interest income, and how to avoid costly filing mistakes.

We know that tax forms can be tricky for businesses. The Internal Revenue Service (IRS) has over 20 types of 1099 forms for specific purposes with their own filing requirements. This is a lot! So, if you are confused between 1099-NEC and 1099-INT, keep reading because both forms serve different purposes. This will help you avoid unnecessary audits and penalties from the IRS.

1099-NEC vs 1099-INT: What is the Difference?

You need to use 1099-NEC for payments made to non-employees, such as independent contractors or freelancers. However, 1099-INT is used to report interest income earned from various sources.

Both forms are pretty common. So, it’s understandable that it might be confusing for many businesses. Using the wrong one or submitting incorrect information can result in:

• Processing delays
• Rejected filings
• IRS notices

But you don’t have to worry. We have your back! This detailed guide will help you understand the purpose of both 1099-NEC and 1099-INT forms, their respective thresholds, and the most common filing mistakes to avoid with the right examples.

What Each Form Covers

This table presents an overview of 1099-NEC vs 1099-INT for easy comparison.

Classified Based On	1099-NEC	1099-INT
Purpose	Report contractor or gig worker payments	Report interest income
What is reported?	Payment made to freelancers, consultants, field agents, etc.	Bank account interest, private loan interest, bond interest, etc.
Common Boxes	Box 1 (Nonemployee compensation) Box 4 (Federal income tax withholding)	Box 1 (Interest income) Box 2 (Early withdrawal penalty) Box 3 (Interest on U.S. bonds)
IRS Codes Needed	No	No
Threshold	≥ $600 annually (2025 TY)	≥ $10 annually (2025 TY)
Issued By	Businesses and organizations	Financial institutions, lenders, some businesses
Issued To	Independent contractors, freelancers, gig workers	Individuals or entities earning interest income

When is 1099-NEC the Right Form?

You should use Form 1099-NEC if you paid $600 or more during the year to a nonemployee for the services. Earlier, these payments were reported in Box 7 of Form 1099-MISC. The form was reintroduced in 2020 so that taxpayers could report non-employee compensation independently. Here are the non-employee services that fall under 1099-NEC:

• Independent contractors or freelancers: This includes professional services like content writing, graphic design, or other consulting work.
• Gig workers: Marketers, delivery agents for grocery or food, and ridesharing operators fall under this.
• Consultants, lawyers who are not on your payroll.
• Repair technicians and maintenance workers who provide services for your business.
• Commission-based agents who are not employees

Common Reporting Scenarios

Box 1: Here, you’ll be able to see your total nonemployee compensation.

Box 2: Your client will only check this box if they made direct sales totaling $5,000 or more of consumer products to you for resale.

Box 3: Box 3 is not used on 1099-NEC forms and should be grayed out.

Box 4: This box is for federal income tax withholding. If the payer collected any backup withholding from you, you’ll find that amount here.

Boxes 5-7: The IRS provides these boxes for convenience, but payers do not have to complete these sections, so they may be blank. If any state income tax was withheld, you’ll see that amount in box 5. Box 6 is for the state identification number, and box 7 records the amount of state income.

Note:

Box 1 of 1099-NEC form should include the total nonemployee compensation paid during the tax year. You need not issue 1099-NEC for product purchases, rent, or personal expenses. Remember, this form applies to business payers only.

While businesses generally need to file Form 1099-NEC for many payments, there are exceptions for certain types of payments and businesses.

Remember these exemptions so that you can avoid incorrect or unnecessary filing:

• Corporations (unless they’re law or medical firms)
• Interest payments (use Form 1099-INT instead)
• Reimbursements without service

When is 1099-INT the Right Form?

Form 1099-INT is the correct form when you have to report interest income of $10 or more, paid to individuals, businesses, or trusts during the tax year. This form is used for a different purpose than 1099-NEC. It focuses specifically on interest payments instead of service compensation.

Typical issuers include:

• Banks and credit unions report interest on savings accounts, checking accounts, and certificates of deposit
• Online investment platforms and brokerage firms pay interest on investment accounts
• Private lenders who pay interest on loans or other financial arrangements
• Partnerships and companies that pay interest on business loans or financial instruments

Common Reporting Scenarios

Box 1 reports taxable interest, like earnings from the savings account.

Box 2 reports early withdrawal penalties when the taxpayer withdraws money from an account before the maturity date.

Box 3 shows the amount of interest income from U.S. Savings Bonds, Treasury bills, Treasury bonds and Treasury notes issued by the US government.

Box 8 and Box 9 report the tax-exempt interest paid.

Note:

This form is usually not used for payments made to contractors or vendors. Even if the interest was part of a legal settlement or agreement, if it qualifies as interest, it goes on Form 1099-INT, not on Form-NEC.

Common Filing Mistakes to Avoid

1. Filing 1099-NEC instead of 1099-INT for private interest payments

Using the wrong 1099 form is a common mistake most businesses make. For example, if you paid $60 in monthly interest on a business loan to a consultant, that must go on Form 1099-INT. This is because you’re paying interest.

2. Reporting contractor payments under 1099-INT

This is the wrong disclosure. Form 1099-INT is strictly for interest income, while contractor payments are nonemployee compensation which must be reported on Form 1099-NEC.

3. Issuing NEC to corporations that don’t need it

Many businesses mistakenly send Form 1099-NEC to corporations. However, most corporations are exempt from 1099-NEC requirements. Only a few corporate payments require 1099-NEC reporting:

• Payments for legal services
• Payments for medical or healthcare services

4. Missing the $10 threshold for 1099-INT

Another common error is not considering the $10 threshold for 1099-INT. Unlike 1099-NEC’s $600 requirement, interest income reporting starts at just $10.

5. Filing forms for personal, not business payments

Filing forms for personal payments is another mistake. Remember, 1099 forms are exclusively for business payments.

6. Entering $0 or placeholder values in unused boxes

Remember to leave it blank if a box does not apply to your situation. Don’t fill it with zeros or anything else. These errors can easily be scanned and flagged by the IRS.

Here’s a tip for you:

If you’re reporting interest paid, always use 1099-INT, even if it’s part of a broader transaction. If you’re paying for labor or deliverables, 1099-NEC is the correct form.

Real-Life Scenarios: 1099-NEC or 1099-INT?

It’s important to look at real-life examples to understand when to use the correct form. Here are some common situations that you might come encounter in your business:

Scenario	Correct Form
You paid $800 to a freelance writer for blog content	1099-NEC
$25 in bank interest earned by your customer	1099-INT
$50 monthly interest on a business loan to a consultant	1099-INT
$600 paid to a videographer for a business shoot	1099-NEC
$100 paid as a settlement interest to a client	1099-INT
$700 paid to an electrician for office wiring	1099-NEC

Here’s an important point many businesses miss:

If you made both service and interest payments to the same recipient, you need to issue separate forms. You should not combine everything onto one form just because it’s convenient. Your consultant, who received $400 for services and $100 in loan interest, should receive both a 1099-NEC and a 1099-INT form.

FAQ: 1099-NEC vs 1099-INT

Let’s look at some of the frequently asked questions by business owners during the tax season.

Q1. Can I issue both 1099-NEC and 1099-INT forms to the same person?
Yes. This is required when someone receives both types of income from your business.

Q2. Is a 1099-NEC issued for services only?
Yes, it’s exclusively for nonemployee compensation, not for goods, products, or interest.

Q3. Can interest income go on a 1099-NEC if it is part of a legal settlement?
This is confusing for many businesses. The answer is no. If it qualifies as interest, it must go on 1099-INT, even if it is part of a larger payout.

Q4. Do I need to file a 1099-INT for $7 interest?
You only need to file a 1099-INT for amounts under $10 if federal tax was withheld. Otherwise, $10 is the minimum threshold.

Q5. Should I issue a 1099-NEC to an LLC or corporation?
Not always. Most C- and S-Corps are exempt, unless they are attorneys or medical providers.

Q6. What if I file the wrong form?
First, you need to file a corrected version of the wrong form, then submit the correct form type with the right information.

 

Final thoughts

Before choosing the form, understand the source and nature of the payment. It’s quite simple if you understand the basic difference between 1099-NEC vs 1099-INT. Use 1099-NEC for nonemployee services and 1099-INT for all interest payments. The right choice ensures compliance, avoids rejections, and keeps your IRS record clean.