Summary: Transportation companies generally are not required to issue Form 1099-NEC to owner-operators for payments to transport freight because IRS rules provide an information-reporting exception for freight payments. However, the exception may be less clear when contractors provide final-mile, white-glove, installation, or other services in addition to transportation. Carriers should also consider worker-classification issues, historical reporting practices, and M&A due diligence before changing their 1099 reporting practices.

Every January, transportation companies across the country undertake the tedious process of preparing Forms 1099-NEC, including forms for the owner-operators they contracted with to haul freight for their customers. It has become such a routine part of year-end reporting that few carriers stop to ask a basic question: Are we actually required to file them?

In many cases, the answer is no.

The IRS generally requires businesses to issue Forms 1099-NEC for payments for services performed by someone who is not an employee. Beginning with payments made in 2026, the general reporting threshold increased from $600 to $2,000. Given that rule, any logical finance professional might assume that payments to owner-operators fall squarely within the Form 1099-NEC reporting requirement.

The Freight Exception to Form 1099 Reporting

However, the tax regulations contain a specific exception that is particularly important to the transportation industry.

Treasury Regulation § 1.6041-3(d) excludes certain payments from information reporting, including “payments for merchandise, telegrams, telephone, freight, storage, and similar charges.” In other words, although payments to independent contractors for services are generally reportable, payments for freight are specifically excluded.

How the IRS Defines “Freight”

The IRS has specifically addressed whether the freight exception applies to payments made to independent truckers.

In IRS Information Letter 2001-0101, the IRS explained that “freight” is given its plain meaning: the transportation of goods or the cost of that transportation. The IRS went on to conclude that payments for transporting goods are exempted from information reporting regardless of whether the transportation is incidental or integral to the taxpayer’s business.

Importantly for motor carriers, the IRS specifically stated that payments are made to independent truckers does not change the exception. The exception is not limited to motor carriers paying owner-operators. Because the exception applies to payments for freight, it generally also means a freight broker is not required to issue a Form 1099-NEC to a trucking company for payments made to transport its customers’ freight.

This exception can eliminate a significant administrative burden for carriers with large owner-operator fleets. A carrier utilizing hundreds, or even thousands, of independent contractors may spend substantial time each January validating taxpayer identification information, reconciling annual payments, preparing forms, addressing returned forms, and responding to questions from contractors.

But before eliminating 1099 reporting altogether, carriers should consider two additional questions: What exactly are they paying their contractors to do, and are there reasons to continue filing even if federal tax law does not require it?

When Does “Freight” Become Something More?

For a traditional owner-operator hauling a load from point A to point B, the application of the freight exception is relatively straightforward. The analysis becomes less clear as carriers expand into final-mile and white-glove services.

Consider a company that delivers furniture directly into a consumer’s home. The driver may not simply unload the furniture at the curb. The service may include bringing the furniture into the residence, carrying it to a particular room, unpacking it, placing it in the desired location, and removing packaging materials.

Although the IRS has not specifically addressed white-glove delivery, there is a reasonable argument that these activities remain part of the freight delivery itself. The customer is fundamentally paying to have goods transported and delivered, and the additional handling is incidental to completing that delivery.

The analysis becomes more difficult, however, as additional services are added. What if the contractor assembles the furniture? What if a television is mounted to a wall? What if an appliance is connected to plumbing or electrical service? At some point, the nature of the payment may begin to look less like a freight charge and more like compensation for installation or other services.

Neither the regulation nor the IRS Information Letter provides a detailed test for determining where that line should be drawn. Companies providing final-mile, white-glove, installation, or other bundled services therefore should not assume that every payment to a delivery contractor automatically qualifies for the freight exception simply because transportation is one component of the service.

Companies in these situations should consider the nature of the services being provided, how those services are described in their contracts, and whether transportation and non-transportation services are separately stated or separately compensated.

Why Voluntary Filing May Still Make Sense

Even when payments clearly qualify for the freight exception, carriers should not necessarily stop issuing Forms 1099-NEC without considering the broader implications.

Some transportation employment attorneys may recommend that carriers continue issuing Forms 1099-NEC as part of a consistent historical record reflecting the company’s treatment of its owner-operators as independent contractors. A Form 1099 does not establish that a driver is an independent contractor. Worker classification is generally determined based on the substance of the relationship and the applicable federal or state classification test, not simply the tax form the company chooses to issue.

Nevertheless, because states apply different worker-classification standards and transportation companies have faced significant litigation involving owner-operator classification, carriers should discuss a change in reporting practices with transportation-specific employment counsel before abandoning a longstanding process.

The important distinction is the tax question and the employment-law question are different questions. Federal tax reporting rules may not require a Form 1099 for a freight payment, while an employment attorney may have separate reasons for recommending a carrier maintain its historical reporting practices.

Carriers Considering a Sale Should Think About Due Diligence

Companies considering an exit in the coming years should also evaluate the issue through an M&A lens.

Any owner-operator fleet that has been through a sale process knows that driver classification can become a significant diligence issue for potential buyers. Buyers and their advisors may scrutinize independent contractor agreements, operating practices, equipment arrangements, insurance requirements, compensation structures, and historical tax treatment.

Issuing Forms 1099 does not prove that owner-operators have been properly classified, and carriers should not view the forms as a substitute for well-drafted agreements and compliant operating practices. However, changing a longstanding tax-reporting practice shortly before a sale could create another question for a buyer or its advisors to investigate.

For a carrier contemplating a transaction, the administrative savings from eliminating 1099 filings therefore should be weighed against the potential benefit of maintaining consistency in its historical contractor documentation.

What Carriers Should Consider Before Changing Course

So, should carriers continue issuing 1099s? There is no universal answer.

For payments that qualify for the freight exception, federal tax law generally does not require a carrier to issue Form 1099-NEC merely because it paid an owner-operator to transport freight. That can be welcome news for carriers that have spent significant time and resources preparing these forms every January simply because “we have always done it that way.”

But the absence of a federal filing requirement is only the beginning of the analysis.

Carriers should consider the services their contractors actually perform, particularly when final-mile, white-glove, or installation services are involved. They should also consider state worker-classification issues, consistency with historical reporting practices, and, for companies contemplating a sale, how a change could be viewed during due diligence.

The key takeaway is simple: Don’t confuse a longstanding industry practice with a tax requirement.

The Bottom Line on 1099 Reporting

Before the next 1099 filing season, transportation companies with owner-operator fleets should understand the freight exception, determine whether their contractor payments qualify, and discuss the employment-law implications with transportation-specific counsel. For some carriers, continuing to issue Forms 1099-NEC may remain the preferred practice. For others, the freight exception may provide an opportunity to eliminate an annual administrative exercise that federal tax law never required in the first place.

To discuss how the freight exception may apply to your business or for guidance on 1099 reporting for owner-operators, contact a KSM advisor using the form below.

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