Since January 2021, companies have been required to start reporting on the new Form 1099-NEC, Nonemployee Compensation. It is a general rule that business owners must issue Form 1099-NEC to each person to whom they have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments. Note that payments made for personal purposes need not issue 1099 forms.
What is Form 1099-NEC?
Form 1099-NEC is a tax form taxpayers use to report any compensation that is $600 or more paid by a company to nonemployees.
It is also a form used to report benefits, commissions, prizes, and awards for service performed by a nonemployee.
Where to get the Form 1099-NEC?
To download and print a copy of Form 1099-NEC, you can visit the official IRS website.
For your convenience, you may fill out Form 1099-NEC electronically on PDFRun.
How to fill out Form 1099-NEC?
Form 1099-NEC requires information from both the payer and the recipient.
PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.
Enter the required information.
Enter the payer’s Taxpayer Identification Number (TIN).
Enter the recipient’s Taxpayer Identification Number (TIN).
Enter the recipient’s legal name.
Enter the recipient’s street address. If there is an apartment number, include it.
City or town, state or province, country, and ZIP or foreign postal code
Enter the recipient’s city or town, state or province, country, and ZIP or foreign postal code.
Enter the account number only if you have multiple accounts for a recipient for whom you are filing more than one Form 1099-NEC.
2nd TIN not.
Mark the box if the IRS notified you twice within 3 calendar years that the payee provided an incorrect TIN. On the other hand, if you received both IRS notices in the same year or if you received them in different years but they both related to information returns filed for the same year, do not check the box at this time.
Box 1 — Nonemployee Compensation
Enter nonemployee compensation (NEC) amount from the previous tax year, amounting to $600 or more.
Nonemployee compensation (NEC) includes the following:
- fees, commissions, prizes, and awards for services performed as a nonemployee
- other forms of compensation for services performed for your trade or business by an individual who is not your employee
- fish purchases for cash
- oil and gas payments for a working interest whether or not services are performed. expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee
- federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments in this box
Box 2 — Payer made direct sales totaling $5,000 or more of consumer products to the recipient for resale
Mark the box if the payer made direct sales amounting to $5,000 or more of consumer products to the recipient for resale.
Leave this blank; the IRS instructed that they reserve this for future use.
Box 4 — Federal income tax withheld
Enter federal income tax withheld. (if there is any)
Box 5 — State tax withheld
Enter state tax you withheld from the nonemployee compensation.
Box 6 — State/Payer’s state no.
Enter the abbreviated name of the state and the payer's state identification number.
Box 7 — State income
Enter the amount of the state payment.
Why did I receive Form 1099-NEC?
Receiving 1099-NEC means that the payer did not consider you as an employee and did not withhold income tax, social security tax, or Medicare tax from your compensation.
In case you are an employee and unable to get the payer to correct the Form 1099-NEC, report the amount on the line for “Wages, salaries, tips, etc.” of Form 1040, Individual Income Tax Return; Form 1040-SR, U.S. Tax Return for Seniors; or Form 1040-NR, US Nonresident Alien Income Tax Return. Please note that you must also complete Form 8919, Uncollected Social Security and Medicare Tax on Wages, and attach it to your return.
If you are not an employee but the amount in this box is not self-employment (SE) income such as income from a sporadic activity or a hobby, report this amount on the “Other income” line of Schedule 1 of Form 1040.
When to submit Form 1099-NEC?
Payers must file these forms by the 31st day of January, every year. Usually, there is no 30-day extension to submit Form 1099-NEC, and the extension is only applicable for a business that encounters hardships.
What is the difference between Form 1099-MISC and Form 1099-NEC?
The IRS has removed reporting for nonemployee compensation from Form 1099-MISC, Miscellaneous Income since 2020. Thus, the IRS redesigned Form 1099-MISC, and people that need to report nonemployee compensation must use Form 1099-NEC.
What are 1099 forms?
Taxpayers use 1099 forms to report specific types of income they have earned the whole year. It is especially important for taxpayers to record the non-employment income they earn. Since there are many ways to earn non-employment income, there are also various types of 1099 forms. Non-employment income includes: (but is not limited to)
- Cash dividends paid for owning a stock
- Interest income from a bank account
- Prizes and awards
Why is there a deadline for filing information returns?
Deadlines for filing information returns help with fraud detection. It helps the IRS easily detect refund fraud by verifying the income that individuals report on their tax returns.
Printing and filing unscannable 1099-NEC’s Copy A forms with the IRS may impose a penalty.
You may download, print, and use the other copies of Form 1099-NEC, which appear in black. You can use it to fulfill the requirement to provide the information to the recipient.
It is important tax information and you are required to file a return. Once there is negligence on the part of the taxpayer, and the IRS determines that an entity did not report a taxable income, they are subject to sanction or penalty.