What is Form 1099-NEC?
Form 1099-NEC is used to report nonemployee compensation, including payments to contractors for services rendered. Nonemployee compensation includes fees, commissions, prizes, and awards for services made by independent contractors, freelancers, vendors, consultants, and other self-employed employees.
Form 1099-NEC may also provide the opportunity to review whether income is being mapped correctly within the existing Form 1099-MISC framework.
Who should file for Form 1099-NEC?
The Internal Revenue Service (IRS) will require business taxpayers to report nonemployee compensation using Form 1099-NEC.
According to IRS, if the following four (4) conditions are met, they are generally considered to be nonemployee compensation and should be reported as an NEC payment:
- If payment was made to a non-employee
- If payment was made for services in the course of your trade or business
- If payment was made to an individual, partnership, estate, or corporation
- If payment made was $600 or more during the Tax Year
Why should business taxpayers file Form 1099-NEC?
Business taxpayers should file Form 1099-NEC to report any compensation given to nonemployees by a company.
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, etc.)
- Payments for services including payment for parts or materials used to perform the services if they were incidental to the service.
- Commissions paid to nonemployee salespeople not repaid during the year.
This includes each person whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
When should Form 1099-NEC be filed?
Form 1099-NEC must be filed no later than February 1, 2021.
Where to mail Form 1099-NEC?
The mailing address for Form 1099-NEC depends on your state.
|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
How to fill out Form 1099-NEC?
Form 1099-NEC has five (5) key parts:
- Payer’s Information
- Recipient’s Information
- Nonemployee compensation amount
- Federal Income Tax withheld
- State Information
For Payer’s Information, please state the following in the corresponding boxes:
- Payer’s name
- Payer’s address
- Payer’s telephone number
- Payer’s Tax Identification Number
For Recipient’s Information, please state the following in the corresponding boxes:
- Recipient’s name
- Recipient’s address
- Recipient’s Tax Identification Number
Both payer’s and recipient’s information includes their name, address, and taxpayer identification. Nonemployee compensation can be found in Box 1 and should include the total compensation for the past tax year.
For nonemployee compensation amount, please only state the amount if you paid the person $600 or more during the year.
For Federal Income Tax withheld, please state any federal income tax withheld.
Box 4 is to report any federal income tax withheld; this is if you have received a backup withholding order for that person.
For State Information, if applicable, please state in the corresponding boxes state taxes withheld, state identification number, and amount of earned income in the state.
Box 5 is for STATE TAX WITHHELD.
Box 6 is for STATE/PAYER’S STATE NO.
Box 7 is for STATE INCOME.
If your state has an income tax, include the total payment amount to that person for the year and any state tax withheld from you.
Reminders when filling out Form 1099-NEC:
DO verify the recipient taxpayer’s ID, via Form W-9.
DON’T use Form 1099-NEC to report personal payments.
DON’T use Form 1099-NEC to report employee wages.
DON’T use Form 1099-NEC to report gross proceeds to an attorney.
DON’T use Form 1099-NEC to report rent payments to real estate agents or property managers.
How to file Form 1099-NEC?
Form 1099-NEC can be filed both electronically or by mail. If you choose to file Form 1099-NEC electronically, you’ll need to use the IRS FIRE system.
What is the IRS FIRE system?
The FIRE system stands for ‘Filing Information Returns Electronically.’
According to the IRS website, the benefits of using the FIRE system are:
- Files are processed faster with fewer errors.
- FIRE System can accept multiple files for the same type of return.
- Combined Federal/State Filing Program (CF/SF) is available for participating states. Refer to Publication 1220 PDF or CF/SF State Coordinator Frequently Asked Questions.
- Fill-in Forms are available for:
a. Form 4419, Application for Filing Information Returns Electronically (FIRE)
b. Form 8809, Extension of Time to File Information Returns - Automatic 30-day requests only.
How to transmit through the FIRE system?
- To file electronically, you must have a software or a service provider that will create the file in the proper format.
- It should be noted that a scanned or PDF copy will not be accepted. Additionally, a Transmitter Control Code (TCC) is required to transmit information returns through the FIRE System.
- Two parts of E-File: Filing and Paying:
If you file electronically, you can pay your taxes along with your electronic filing by using electronic funds withdrawal, available with tax preparation software or through your tax preparer.
Paying taxes by phone or the Internet using a debit or credit card is also an option, whether you file electronically or not.
Link redirecting to the Filing Information Returns Electronically or ‘FIRE’ system: visit the official IRS FIRE website.
- It should be noted that the use of this system constitutes consent to monitoring, interception, recording, reading, copying or capturing by authorized personnel of all activities.
- There is no right to privacy in this system.
- Unauthorized use of this system is prohibited and subject to criminal and civil penalties, including all penalties applicable to willful unauthorized access (UNAX) or inspection of taxpayer records (under 18 U.S.C. 1030 and 26 U.S.C. 7213A and 26 U.S.C. 7431).
Electronic and mail submissions of Form 1099-NEC both are to be submitted no later than February 1, 2021.