If you run a consignment shop or gallery and pay any single non-corporate consignor $600 or more during the calendar year, you generally have to issue a 1099 for consignment sales, specifically Form 1099-NEC, reporting the net amount you paid them. The $600 is cumulative across every payment to that consignor in the year, not a per-transaction figure. The obligation sits with you as the consignee, because for tax purposes you are the payer even though you never owned the goods.
Who Has to Receive One
A consignment arrangement is an agency relationship: the consignor owns the goods, you sell them on the consignor’s behalf, and you remit a share of the proceeds. Those proceeds are income to the consignor, and once your running total to any one consignor hits $600, you owe them a 1099-NEC. Six $100 payouts cross the line just as surely as one $600 check.
The reporting requirement covers payments to individuals, sole proprietors, partnerships, and most LLCs. The LLC piece is where consignees slip. An LLC taxed as a sole proprietorship or partnership gets a 1099 the same way an individual would. An LLC that has elected S-corporation or C-corporation treatment is generally exempt. The label on the storefront tells you nothing; the W-9 tells you everything.
Get a W-9 Before You Pay
Collect a completed Form W-9 from every consignor before you cut the first check. The W-9 gives you the consignor’s legal name, address, taxpayer identification number, and entity type. Without it, you can’t prepare a valid 1099, and you expose yourself to penalties for filing with a missing or incorrect TIN.1Internal Revenue Service. Instructions for the Requester of Form W-9
If a consignor refuses to give you a W-9, or the TIN they provide gets flagged as incorrect, you must withhold 24% of every payment and send it to the IRS as backup withholding.1Internal Revenue Service. Instructions for the Requester of Form W-9 Backup withholding is reported annually on Form 945, and the amounts are deposited electronically.2Internal Revenue Service. Instructions for Form 945 Skip it when it’s required and you become personally liable for the amount you should have withheld.
Which Form and Which Box
For a standard consignment shop paying individual sellers, the form is Form 1099-NEC, Box 1 (Nonemployee Compensation), with the $600 threshold.3Internal Revenue Service. About Form 1099-NEC, Nonemployee Compensation
A narrower rule exists for consumer products sold on a commission basis. When total sales of consumer products through a deposit-commission or similar consignment arrangement reach $5,000 or more with a single consignor, you can report using either Form 1099-NEC, Box 2, or Form 1099-MISC, Box 7.4Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC This one is aimed mostly at manufacturers and distributors placing goods with retailers, not at resale shops paying individuals.
Report the Net, Not the Gross
The number that goes in Box 1 is what you actually paid the consignor. Your commission does not belong on the 1099.
Say a piece of furniture sells for $3,000 and your agreement gives you a 40% commission. You keep $1,200 and pay the consignor $1,800. The reportable amount is $1,800. Reporting the $3,000 gross overstates the consignor’s income by 67%, hands them a tax bill they don’t owe, and generates IRS correspondence for both of you when their return doesn’t match your form. The figure in Box 1 should equal, to the penny, the total you transferred to the consignor during the year by check, ACH, or cash.
Your commission is your own business revenue. It shows up on your own return, not on any 1099 you issue.
When You Don’t Have to File
Corporate Consignors
Payments to consignors organized as C-corporations or S-corporations are generally exempt from 1099-NEC reporting.4Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Keep the W-9 on file to prove the entity type, but you don’t send the form. The narrow exceptions to the corporate exemption, such as attorney fees and medical payments, rarely surface in consignment.
Payments Through Third-Party Processors
When you pay a consignor through a third-party settlement organization like PayPal, Venmo, or Stripe, the reporting obligation can shift to the processor, which issues a Form 1099-K to the consignor instead.5Internal Revenue Service. About Form 1099-K, Payment Card and Third Party Network Transactions
The 1099-K threshold for third-party settlement organizations is $20,000 in gross payments and more than 200 transactions with the same payee in the calendar year. Both conditions must be met. That threshold was retroactively reinstated by the One, Big, Beautiful Bill, reversing the lower $600 threshold enacted under the American Rescue Plan Act of 2021.6Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill
Payment card transactions are different. If you pay by running a credit or debit card, the card network must issue a 1099-K with no minimum dollar threshold at all.7Internal Revenue Service. FS-2025-08 – Form 1099-K Payment Card and Third Party Network Transactions
Mixed payment channels are where consignees get burned. If you pay the same consignor partly through a processor and partly by check, you still owe a 1099-NEC on the direct payments. Keep records clean enough to show which dollars went through which channel, or you’ll either underreport or double-report the same income.
Deadline and Penalties
Form 1099-NEC has to be furnished to the consignor and filed with the IRS by January 31 of the year after payment. There’s no automatic extension. The deadline is firm.
Miss it and the per-return penalty grows the longer you wait. For returns due in 2026:8Internal Revenue Service. Information Return Penalties
- Filed within 30 days of the deadline: $60 per return
- Filed after 30 days but by August 1: $130 per return
- Filed after August 1 or not filed at all: $340 per return
- Intentional disregard: $680 per return
Those numbers scale. A shop with 50 consignors that forgets to file is looking at $17,000 in penalties if the forms never go out. Small businesses (average annual gross receipts of $5 million or less) get lower aggregate caps, but the per-return amounts don’t change.
What to Keep and for How Long
Track every consignment transaction: gross sale price, commission rate and dollar amount, and net paid to the consignor. Reconcile monthly against the year-to-date total for each consignor so you’re not reconstructing numbers in January.
Hold onto every W-9 you collected, every 1099 you issued, and the underlying transaction records. The IRS’s general recordkeeping guidance calls for at least four years from the date the return was due or filed, whichever is later.9Internal Revenue Service. Recordkeeping If a consignor disputes an amount or the IRS sends a notice, those records are what prove your math.