CLA | Form 1099-NEC for Freight Services: Should Companies Issue Them?

Most organizations must issue 1099-NECs for amounts paid to third parties by the end of January, but a lot of people don’t realize there is an exception for freight services. Does this exception apply to your company?

Many companies still issue 1099-NECs to freight contractors, but there are some downsides to it. Besides the effort and cost involved in sending out 1099s, the IRS can match 1099s filed with their records and send out notices to the filer.

These matching issues can be due to a carrier or independent contractor providing a company with an incorrect or illegible W-9, the carrier or independent contractor providing the IRS with incorrect information, or potentially the individuals responsible for filing the 1099s filling out the 1099s incorrectly.

In some instances, the IRS can propose penalties for filing information returns incorrectly for up to $1,360 per record deemed to be incorrect (could be missing or incorrect name, TIN, or address).

Should companies issue 1099-NECs for freight services?

Considering the potential proposed penalties for filing informational returns incorrectly, should companies issue 1099-NECs for freight services? There are pros and cons for sure. On the pro side, issuing 1099-NECs can help contractors or independent carriers figure out how much income they earned in a year. It also can help companies provide further evidence these carriers and/or independent contractors are not employees.

On the con side are the potential penalties for filing information returns incorrectly, the time and effort involved, and the costs. Companies are also relying on records provided by these carriers, and if they’ve provided an incorrect record, it could put companies in a tough spot. It’s worth noting even though 1099s may not be required for freight services, taxpayers are still responsible for the accuracy of any and all forms filed with the IRS. But it’s not an easy decision to make.

General 1099-NEC rules for transportation, logistics, and distribution companies

While freight services often fall under an exception to the 1099-NEC reporting requirements, transportation, logistics, and distribution companies should understand the broader rules for independent contractors and service providers. Here are some key considerations:

Who typically receives a 1099?

Businesses must issue Form 1099-NEC to any non-employee who provides services and is paid $600 or more during the calendar year. This threshold will increase to $2,000 or more for payments made in 2026, indexed for inflation. Non-employees include independent contractors, consultants, and other service providers. For transportation companies, this could apply to mechanics, dispatch services, or administrative contractors, not just drivers.

Corporate status matters for 1099-NECs

Payments to corporations are usually exempt from 1099 reporting, but there are exceptions (e.g., legal services). Always verify (through a W-9) whether your contractor is operating as a corporation or an LLC taxed as a corporation, as this can impact your filing requirements.

1099 recordkeeping is critical

Even if you’re not required to issue a 1099 for certain payments, maintaining accurate records is essential. The IRS expects businesses to explain why a 1099 wasn’t issued. Keep W-9 forms on file for all vendors and contractors to document their tax classification.

1099-NEC checklist for transportation companies

Use this checklist to help determine if a 1099 is required for a payment:

Was the payment $600 or more during the year?

If yes, continue to next step.

Was the payment for services (not goods or freight)?

If it’s strictly for freight or storage, a 1099 is generally not required.

Is the payee an individual, partnership, or LLC taxed as a sole proprietor?

Payments to corporations are usually exempt (except for legal services).

Do you have a completed W-9 on file?

Always collect and verify this before issuing payment.

Were any additional services provided beyond freight (e.g., consulting, logistics planning)?

If yes, those payments may require reporting.

Are your records accurate and legible?

Incorrect names, TINs, or addresses can lead to penalties.

For more information on this topic, please reach out to:

• Andy Bollman, Principal, CLA
• Nathan Logan, Principal, CLA

Compliments of CliftonLarsonAllen- a member of the EACCNY