If you paid someone to design your website or consult on a project for your business, you may need to file Form 1099-NEC. Using an independent contractor is usually easier than hiring an employee, but you still must report what you paid them to the IRS using this form.
We know what you’re thinking: Another tax form I need to keep track of for my business?! Gordon Law can help. We manage your business and personal tax requirements so you can get back to what you do best!
What is Form 1099-NEC?
Form 1099-NEC, Nonemployee Compensation, is the tax form used to report amounts paid for services performed by people who are not employees of your business.
Nonemployee compensation is essentially what you pay to an independent contractor to perform a service for your business. It can also include fees, commissions, prizes, and awards. These amounts are different from the amounts paid to employees, which are reported on Form W-2.
On the form, you report information like:
- Basic information about the payee
- Basic information about the payer
- Amount of compensation paid
- Amount of income tax withheld (if any)
Who Gets a Form 1099-NEC?
You need to file this IRS form if:
- You paid an independent contractor for services (including parts and materials); the contractor is not an employee
- The payment was made to an individual, single-member LLC, partnership, or LLC taxed as a partnership and is subject to self-employment tax
- You made the payment in the course of your trade or business
- The amount you paid the payee totaled at least $600
A copy of the form is filed with the IRS, and a copy is provided to the contractor. They will use this form to file their own tax returns for the year.
You must complete a separate form for each qualifying contractor.
Who Does Not Need to File?
Form 1099-NEC is only for business payments. If you paid someone over $600 for a personal reason, you do not need to file it.
Typically, you also don’t need to file this form for payments made to a corporation.
There are a handful of other exceptions that you can check out in the full IRS instructions here.
When is Form 1099-NEC Due?
Heads up! Form 1099-NEC is due January 31st. You need to send copies to the IRS and the recipients by this date.
If you file late, there are penalties! Penalties are based on the number of late forms, so if you have a lot of these forms you need to file, the penalties can add up. Ask our experienced tax attorneys about removing tax penalties.
What Do You Need to Complete Form 1099-NEC?
To complete a Form 1099-NEC for any contractors you hired during the year, you need to have them complete a Form W-9 or Form W-8BEN. These forms collect information like the contractor’s Social Security Number or EIN, which you need to complete Form 1099-NEC.
- Form W-9: For U.S. citizens or residents
- Form W-8BEN: For non-U.S. residents
Pro Tip: Collecting these forms before you start working with someone is always considered a best practice.
You will also need:
- Your business information (EIN, address, etc.)
- Total amount paid to each contractor (check invoices or payment receipts)
1099-NEC or 1099-MISC?
It is common to confuse Form 1099-NEC with Form 1099-MISC. Form 1099-NEC was introduced in 2020; prior to this, the information was reported on 1099-MISC.
Today, Form 1099-MISC, Miscellaneous Information, is used to report amounts that are not considered earnings and are not subject to self-employment tax.
On 1099-MISC, report payments over $600 for things like:
- Rent
- Royalties
- Prize winnings
The thing to remember is that if someone performed a service for your business, you’re most likely going to use Form 1099-NEC.
How to Report Nonemployee Compensation on Your Tax Return
If you’ve received Form 1099-NEC and you’re wondering what to do with the information, check out our guides to self-employed tax requirements and completing Schedule C.
Looking For More Help?
Filing this tax form for your contractors is important; it’s the document they use to file their own tax returns.
If you have questions about your filing requirements, reach out to Gordon Law today so we can help. Our experienced tax attorneys and accountants have helped business owners like you simplify their tax preparation for more than 10 years, saving our clients millions in taxes and penalties!
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