Starting with the 2020 tax year, businesses will report and utilize Form 1099-NEC if they make payments of $600 or more to certain nonemployees, such as an independent contractor.
If you are an independent contractor, you should anticipate receiving this new form from any business that paid you $600 or more in nonemployee compensation in tax year 2020 or later.
Each year, you should receive these forms by January 31st and utilize them to complete your tax return.
Key Takeaways
- The Internal Revenue Service (IRS) mandates businesses to use Form 1099-NEC rather than Form 1099-MISC to record nonemployee compensation of $600 or more.
- Businesses must also provide Form 1099-NEC if they withhold federal income tax from any payment made to a nonemployee, regardless of the payment’s amount.
- If you are a self-employed individual and your business paid you $600 or more in nonemployee compensation, you should receive Form 1099-NEC by January 31st, which you can use to complete your tax return.
- Fees, benefits, commissions, prizes, and awards for services rendered by a non-employee can all be considered non-employee payment.
What is Form 1099-NEC Used For?
Form 1099-NEC is used for reporting non-employee compensation if the business made payments totaling $600 or more to certain non-employees, such as an independent contractor.
Who Has to File Form 1099-NEC?
Form 1099-NEC is used by any business that pays nonemployee compensation payments totaling $600 or more to at least one payee or withholds federal income tax from a nonemployee’s payment.
Payers must generally submit these forms by January 31st and do not automatically receive 30-day extensions unless their company meets certain criteria for critical conditions.
When is Form 1099-NEC Due?
Form 1099-NEC is due to the IRS by January 31st of each year, regardless of your filing method (paper filing or e-filing). Recipient copies must also be distributed by January 31st. If the 1099-NEC due date falls on a federal holiday or weekend, it is due the next business day.
Where is Form 1099-NEC Filed?
Form 1099-NEC can be filed online, by mail to the IRS, or by third-parties.
- Online: You can use the Information Returns Intake System (IRIS) Taxpayer Portal to electronically submit Form 1099-NEC to the IRS. You can electronically submit Form 1099-NEC using this free filing option, as well as request extensions, make changes, and more.
- Mail: You can mail Form 1099-NEC to the IRS if you would prefer to file by paper. The address you use must be submitted to their processing center in Austin, Texas, Kansas City, Missouri, or Ogden, Utah, depending on where your business is located. Visit the IRS website for mailing instructions.
- Third-parties: You can file your own self-employment taxes by using third-party tax filing software. In order to maximize your return and meet the deadlines to avoid fines and fees, a tax expert may also assist you in making sure you apply all applicable deductions and credits.
Where do I find the newest version of Form 1099-NEC?
The newest version of Form 1099-NEC can be found on the IRS website at the following link.
How do I find the instructions for Form 1099-NEC?
The instructions for Form 1099-NEC can be found on the IRS website at the following link.
Why is it important to file Form 1099-NEC?
The IRS requires that businesses file Form 1099-NEC to record payments made to independent contractors.
Are there penalties for mistakes in filing Form 1099-NEC?
A company faces a minimum penalty of $630 per form (tax year 2024) or 10% of the income stated on the form, whichever is greater, if it intentionally disregards the requirement to provide an accurate Form 1099-NEC.
What documents are required to file Form 1099-NEC?
The following information/documents will be needed to complete Form 1099-NEC:
- Payer Details – Name, TIN, and Address
- Recipient Details – Name, TIN and Address
- Nonemployee compensation
- Federal Income tax withheld
- Federal details – Miscellaneous Incomes and Federal Tax withheld
- State Filing Details -State Income, Payer State Number, and State Tax Withheld
Are there secret deductions that can be taken on Form 1099-NEC?
One of the advantages of receiving a 1099-NEC instead of a W-2 is that you can deduct company expenses on Schedule C, which you use to calculate your net profits from self-employment.
Do I need to file Form 1099-NEC?
The IRS mandates every business to file Form 1099-NEC on or before January 31st, if you made payments to a nonemployee compensation totaling $600 or more for the year.
How do I prepare Form 1099-NEC?
- Collect personal information from independent contractors with Form W-9, Request for Taxpayer Identification Number and Certification.
- Confirm payment amount.
- Complete the details and submit Copy A to IRS.
- Provide Copy B to the independent contractor(s) and keep a copy for yourself.
How long does it usually take to prepare Form 1099-NEC?
It usually takes a few days to prepare Form 1099-NEC.
What are Common Errors Seen on Form 1099-NEC?
Some common errors found in filing Form 1099-NEC are incorrect payment amounts, incorrect payee information, duplicate filings, and missing or incomplete forms.
Do You Have Any Tips for Filing Form 1099-NEC Correctly?
- To file Form 1099-NEC correctly requires all freelancers, independent contractors, and vendors to fill out W-9 forms.
- Use the IRS’s TIN matching tool.
- Check state filing requirements.
- Hire a professional to prepare Form 1099-NEC.
What if I file Form 1099-NEC Late?
You may be subject to a fine if your company fails to submit a 1099-NEC by the due date of January 31st to the IRS and the relevant state tax offices.
Can Cleer help me file Form 1099-NEC?
Yes, Cleer Tax provides services like filing 1099-NEC to clients. At Cleer Tax, our dedicated team is committed to addressing the distinct requirements of your business.
We provide comprehensive tax advisory services tailored to your specific needs, covering every aspect of compliance and optimization – including helping you reduce tax liability wherever possible. Our goal is to ensure that you capitalize on every available opportunity, leaving no stone unturned when maximizing your tax benefits and minimizing any potential liabilities.
Cleer provides Corporate Income Tax Packages encompassing federal and state income tax filings for a hassle-free experience. We also offer all-inclusive bookkeeping packages, which include your monthly statements plus your federal and state tax returns. If you need help getting up to date on your books, we also offer support for companies that have fallen behind on their bookkeeping with our bookkeeping catch-up package.
If you need any help reducing your tax liability, schedule a consultation, or feel free to contact us.
