Small businesses often hire freelancers, independent contractors, and others to provide services. Payments to these non-employees must be reported for federal tax purposes, on Internal Revenue Service (IRS) Form 1099-NEC.
This article describes Form 1099-NEC, how to complete it, and when to send the form to the IRS and recipients.
- Form 1099-NEC is used to report non-employee compensation of $600 ore more for the year, to the IRS and the recipient.
- Non-employees include freelancers, independent contractors, small businesses, and professionals who provide services.
- The compensation being reported must be for services for a trade or business.
- Non-employee compensation was previously included on the 1099-MISC form before the 2020 tax year.
Definition of Form 1099-NEC
Form 1099-NEC is used to report any compensation given to non-employees by a company or for business purposes. A non-employee can be a freelancer, independent contractor, gig worker, or other service provider. It also includes professionals like accountants and attorneys.
These payments were formerly reported on Form 1099-MISC through 2019, but they must now be reported on Form 1099-NEC (sample below).
Who Uses Form 1099-NEC?
You must file a Form 1099-NEC form for non-employee compensation if all four of these conditions are met:
- Payment was made to someone who is not your employee
- Payment was made for services in the course of your trade or business
- Payment was made to an individual, partnership, estate, or corporation
- Payment made to the payee was at least $600 or more for the year
Don't use Form 1099-NEC to report payments to a corporation, including a limited liability company (LLC) filing a tax return as a corporation or S corporation.
Some examples of payments you must report on Form 1099-NEC include:
- Professional service fees to attorneys (including law firms established as corporations), accountants, architects, etc.
- Fees paid by one professional to another (fee-splitting, for example)
- Payments for services including payment for parts or materials used to perform the services if they were incidental to the service
- Commissions paid to non-employee salespeople not repaid during the year
You must also file Form 1099-NEC for anyone from whom you withheld federal income tax under backup withholding rules for any amount, even if it’s less than $600.
Form 1099-NEC is also used to report sales of consumer products totally $5,000 or more, for resale, on a buy-sell, a deposit commission, or other basis. This income should be reported on the recipient's small business tax return.
Don’t use Form 1099-NEC to report personal payments. It should only be used for payments if you are in a trade or business for profit.
Due Date for Form 1099-NEC
Form 1099-NEC must be given to each payee and filed with the IRS by January 31 of the year after the tax year being reported. In other words, For example, Form 1099-NEC for 2021 must be submitted by January 31, 2022. If January 31 is a weekend or holiday, the form is due the next business day.
Backup Withholding and Form 1099-NEC
Non-employees don't have withholding taken from their payments, but there is one exception for backup withholding. Backup withholding is usually required by the IRS if a taxpayer fails to provide a correct taxpayer ID number on their W-9 form at hire. In this case, the IRS sends a backup withholding order to the payer requiring that they withhold federal income taxes from the payee at 24%. This withholding order stays in effect until it's removed by the IRS.
Where To Get a Form 1099-NEC
Here are several ways to get 1099-NEC forms:
- Using business tax preparation software
- Directly from the IRS
- From your business accounting program
- From an accountant or CPA who prepares business taxes
You can't download the form from the internet because Copy A is printed in a special type of red ink that must be scannable.
What To Do If You Don't Receive Form 1099-NEC
If you were paid $600 or more from any payee as a non-employee during the year, you must file Form 1099-NEC with the IRS as part of your tax return. If you had non-employee income and haven't received your form by the end of January, contact the payee directly to request it.
How To Fill Out and Read Form 1099-NEC
There are five key parts to Form 1099-NEC:
- Payer's information
- Recipient's information
- Non-employee compensation amount
- Federal income tax withheld
- State information
Information about the payer and payee information includes their name, address, and taxpayer ID.
Box 1: Reports the total amount of non-employee compensation paid during the year.
Box 2: Must be checked if you sold $5,000 or more for resale or other purposes. The total amount isn't reported on this form, but it's included on your small business tax return (usually Schedule C).
Box 4: Reports any federal income tax withheld from a backup withholding notice.
Box 5: Shows any state tax withheld, Box 6 is a specific identification number for each state, and
Box 7: The total state income to the non-employee for the year.
How To File Form 1099-NEC
The 1099-NEC forms must be filed with the IRS before January 31 using either paper or electronic filing.
If you are filing paper returns, print them off and send to the IRS at the address depending on your state.
|State Filing Addresses|
|Alabama, Arizona, Arkansas, Delaware, Florida, Georgia, Kentucky, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Texas, Vermont, Virginia||Department of the Treasury Internal Revenue Service Center Austin, TX 73301|
|Alaska, Colorado, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin, Wyoming||Department of the Treasury Internal Revenue Service Center P.O. Box 219256 Kansas City, MO 64121-9256|
|California, Connecticut, District of Columbia, Louisiana, Maryland, Pennsylvania, Rhode Island, West Virginia||Department of the Treasury Internal Revenue Service Center Ogden, UT 84201|
Frequently Asked Questions (FAQs)
When is form 1099-NEC due to the IRS?
Form 1099-NEC is due to both the IRS and the payee on January 31 of the year after the tax year being reported. For example, 1099-NEC forms for 2021 must be filed with the IRS and sent to the payee by January 31, 2022.
The IRS assesses penalties for late filing of Form 1099-NEC. The amount of the fine depends on the number of returns and the lateness of the filing. If you are late, file as soon as possible to minimize penalties.
Which copies of Form 1099-NEC go to the recipient?
When you complete a 1099-NEC form, you'll have several copies. File Copy A with the IRS, either in paper form or online.
Give Copy 1 to the recipient for filing with their state tax department (if their state requires state income tax).
Copy B is for the recipient to keep for their records.
If you file Copy A electronically, you must still send paper copies of Copy 1 and Copy B to the recipient.
How do I file a corrected Form 1099-NEC?
To correct Form 1099-NEC for common errors you will need to complete a new form and click the "Corrected" box at the top of the form. If you filed a paper form, you must send the corrected Copy A and Form 1096 to the correct IRS processing center.
Some types of errors require a different process that doesn't include using the "Corrected" box. See the General Instructions for Certain Information Returns (page 12) for details on how to correct specific errors.