Do you need to file a 1099 for referral fees
Usually, yes. When your business pays a referral fee to a partner, the IRS treats it as a payment for services by a nonemployee. If the partner is a US individual, a partnership or an LLC that is not taxed as a corporation, and your total payments to them for the year reach the reporting threshold, you file Form 1099-NEC and send the partner a copy.
This guide covers US federal rules for US businesses paying partners, as published by the IRS at the time of writing. It is general information, not tax advice. Your accountant can tell you how the rules apply to your company, and state rules can add their own requirements.
The reporting threshold: $600 before 2026, $2,000 after
For decades the threshold for Form 1099-NEC was $600. The One, Big, Beautiful Bill Act, signed in July 2025, raised it.
| Payments made | Threshold for Form 1099-NEC |
|---|---|
| In 2025 or earlier | $600 or more to the payee in the calendar year |
| After December 31, 2025 | $2,000 or more to the payee in the calendar year |
| In 2027 and later | $2,000, which the IRS may adjust for inflation |
Three details matter:
- The test is per payee, per calendar year. Add up everything you paid that partner for services during the year, not each payment on its own.
- The date that counts is when you paid. A fee earned in December 2025 but paid in January 2026 falls under the 2026 rules.
- The same $2,000 applies to Form 1099-MISC and to backup withholding. The IRS has said that from 2026, annual payments below $2,000 are not reportable payments and do not require backup withholding.
When a 1099-NEC is required
| Who you paid | How you paid | File a 1099-NEC? |
|---|---|---|
| US individual or sole proprietor, $2,000 or more in 2026 | Bank transfer, check or wire | Yes |
| Single-member LLC with no corporate election | Bank transfer, check or wire | Yes, using the owner's name and TIN from the W-9 |
| Partnership or multi-member LLC taxed as a partnership | Bank transfer, check or wire | Yes |
| C corporation, S corporation, or LLC taxed as either | Any | Generally no |
| Any US payee, less than $2,000 in 2026 | Any | No |
| Any payee | Credit card or third-party payment network | No, the payment network reports it on Form 1099-K |
| Non-US partner, work done outside the US, valid W-8 on file | Any | No |
The corporation exemption has exceptions, such as payments to attorneys, but they rarely affect referral programs. The W-9 tells you which category a partner falls into, because it asks for their federal tax classification.
1099-NEC vs 1099-MISC for referral fees
Referral fees and commissions paid to partners are compensation for services, so they go on Form 1099-NEC. The IRS instructions list fees, commissions, prizes and awards for services performed as a nonemployee as nonemployee compensation.
Form 1099-MISC is for other payments, such as rents, royalties and prizes or awards that are not for services. Programs that give customers a reward for referring a friend sometimes fall into this area. If you run both a partner program and a customer referral scheme, ask your accountant how to report each.
Collect a W-9 before the first payout
Form W-9 is how a US partner gives you their correct taxpayer identification number (TIN), their legal name and their tax classification. You keep it; it is not filed with the IRS.
Ask for it during onboarding, before any money moves. Partners are easy to reach when they want to join and hard to reach in January.
If a US partner does not give you a TIN, or the IRS tells you the TIN is wrong, you may have to begin backup withholding: holding back 24% of reportable payments and sending it to the IRS. Writing "W-9 required before first payout" into your referral partner agreement avoids most of these cases.
Non-US partners and Form W-8BEN
Partners outside the US do not complete a W-9. Instead:
- Individuals give you Form W-8BEN.
- Companies give you Form W-8BEN-E.
Like the W-9, these are kept on file, not sent to the IRS. A foreign person who gives you a valid W-8 is generally exempt from Form 1099 reporting and backup withholding. Fees for work done entirely outside the US are generally not US-source income. If a non-US partner does any work inside the US, the rules change, and you should get advice before paying them.
Payments through card networks and payment processors
The IRS instructions say that payments made with a credit card or payment card, and certain other payments including third-party network transactions, are reported on Form 1099-K by the payment settlement entity, not on Form 1099-NEC. If you pay a partner that way, leave those payments off their 1099-NEC so the income is not reported twice.
Third-party settlement organizations, such as online payment networks, file a 1099-K for a payee only when the year's transactions come to more than $20,000 and more than 200 transactions, the threshold the One, Big, Beautiful Bill Act restored. Either way, the 1099-K is the network's obligation, not yours.
Payments you send by ACH, wire or check are yours to report. If you pay through a payout service, ask the provider how its payouts are reported, and confirm the answer with your accountant.
Deadlines
| Task | Deadline |
|---|---|
| Send Form 1099-NEC to the partner | January 31 |
| File Form 1099-NEC with the IRS | January 31 |
| Either date falls on a weekend or legal holiday | Next business day |
For payments made in 2026, January 31, 2027 is a Sunday, so both copies are due Monday, February 1, 2027.
If you file 10 or more information returns of any type in total, you must file them electronically. The IRS runs a free portal, the Information Returns Intake System (IRIS), for e-filing Forms 1099.
A worked example
Here are one SaaS company's referral payouts for calendar year 2026, all paid by ACH.
| Partner | Entity type from W-9 | 2026 payments | 1099-NEC? |
|---|---|---|---|
| Signal Partners | Single-member LLC, no election | $7,450 | Yes, $7,450 |
| A freelance consultant | Individual | $1,800 | No, under $2,000 |
| Cobalt Consulting | S corporation | $22,000 | No, corporation |
| Brightline Agency | Multi-member LLC, partnership | $2,100 | Yes, $2,100 |
| A UK agency | W-8BEN-E on file, all work in the UK | $5,000 | No, foreign payee |
The freelance consultant is the one to watch. Under the 2025 rules, $1,800 would have needed a 1099-NEC. Under the 2026 rules it does not. Brightline Agency, at $2,100, is just over the line, so it does.
The company sends two 1099-NECs, one to Signal Partners and one to Brightline Agency, and files them with the IRS by February 1, 2027.
What records to keep
- W-9 or W-8 forms for every partner you pay, with the date received.
- Commission statements or self-billed invoices showing what each payment was for.
- Proof of payment, with dates, so you can show which tax year a payment falls in.
- Copies of the 1099s you filed. The IRS says to keep these for at least 3 years from the due date, or 4 years if you backup withheld.
Common mistakes
- Using the old $600 threshold for 2026 payments. You will file forms you do not need to and confuse partners.
- Using the old $2,000 threshold for 2025 payments. The new amount applies only to payments made after December 31, 2025.
- Chasing W-9s in January. Collect them at onboarding.
- Reporting card payments on a 1099-NEC. Those belong on the payment network's 1099-K.
- Assuming every LLC is exempt. Only LLCs taxed as a corporation are. Check the W-9.
For the other side of the question, how much to pay in the first place, see our referral fee percentage guide.
Handling it without spreadsheets
Year-end reporting is simpler when every partner's tax form and every payout live in the same place. Partner.io collects W-9s from US partners during onboarding and generates Form 1099-NEC for US companies from the commissions you paid during the year. If some payouts go through a payment service, ask your accountant whether they belong on the 1099-NEC or are reported by the service on a 1099-K. Have your accountant review your setup once, then let the records do the work each January.