How to Prepare 1099-NEC Forms—Step by Step

Image shows two people in a split-scene, both working on their computers. Title reads: Who should receive a 1099-misc form?" Text reads: "You must send one to non-employees you paid $600 or more to in the calendar year; Most commonly used for independent contractors and vendors who are self-employed individuals; Check with your tax professional if you are still in doubt."

Jo Zixuan Zhou / The Balance 

The IRS has introduced Form 1099-NEC for the 2020 tax year, making a distinction between nonemployees and other types of miscellaneous compensation a business might pay. The form doesn't replace Form 1099-MISC. It just separates payments made to nonemployees onto this different form for reporting purposes.

Nonemployees should receive Form 1099-NEC rather than Form 1099-MISC beginning in 2020. You would still use Form 1099-MISC for nonemployees for the 2019 tax year.

The information you'll need for this form will come from your business records for nonemployee payments to each person or business you compensated for services.

Who Should Receive Form 1099-NEC? 

NEC stands for "nonemployee compensation," and Form 1099-NEC includes information on compensation you paid during the previous calendar year to nonemployees. You must send a 1099-NEC form to any nonemployees to whom you paid $600 or more during the 2020 calendar year.

This form is NOT used for employee wages and salaries.

The 1099-NEC is used for independent contractors who are self-employed individuals and do work for you, but not for corporations or employees.

A nonemployee differs from an employee in that you don't control when or how the individual provides services to you. You expect an employee to arrive at your place of business at a specific time, and you control what they do during their work hours. A nonemployee or independent contractor would do work for you according to their own schedule.

You control how an employee is paid: when and how much. An independent contractor will tell you what they charge for your services, and it's your choice whether you want to pay it.

The third factor is more of a gray area defined by your relationship with the individual. An employee might receive benefits, but you would not provide benefits to an independent contractor. Your business wouldn't stumble if an independent contractor's contributions were no longer available.

Check with your tax professional if have any doubts about whether someone is an employee or a nonemployee, or file Form SS-8 to ask the IRS to make the determination for you.

Form 1099-NEC vs. 1099-MISC

Form 1099-NEC is reserved for individuals who provide you with services but who don't work for you as an employee. It's also used for attorneys under some circumstances, and to anyone from whom you purchase fish or "other aquatic life," but only if you make the purchase with cash and the individual is someone whose business is catching fish.

Form 1099-MISC is still in use in 2020, but it no longer includes nonemployee compensation. It reports payments such as rents, prizes and awards, medical and health care payments, nonqualified deferred compensation, consumer goods for resale, and royalties—basically miscellaneous payments to anyone who isn't an independent contractor.

Nonemployees should receive FORM 1099-NEC rather than Form 1099-MISC beginning in 2020 and going forward.

Taxpayer ID Numbers for Form 1099-NEC

You must have a valid tax ID number for a nonemployee before you prepare Form 1099-NEC. Ask each nonemployee to complete and give you a W-9 form reporting this and other identifying information you'll need to complete Form 1099-NEC. Document your efforts to obtain a completed W-9 form by keeping notes of the attempts you made, including emails and mailings.

You can file the 1099-NEC using zeros in the space where the taxpayer ID is required if the individual simply won't give you the number. You might want to reconsider using their services and paying them going forward.

Doublecheck the taxpayer ID numbers provided to you by nonemployees to avoid issues with the IRS. The agency provides an Online Taxpayer ID Matching program to help you ensure that the numbers are correct. The program requires signup.

How to Complete Form 1099-NEC

You'll have to include information about your business for each 1099-NEC you prepare, including:

Enter the recipient's taxpayer ID number (Social Security number, employer ID number, or federal tax ID number) along with all your own business information in the boxes provided on the left side of the page. Each is clearly marked as to what you should enter there.

Next enter information regarding the payments you've made to the nonemployee in the appropriate box:

  • Box 1: This tells the nonemployee and the IRS the total of how much you paid the individual.
  • Box 4: You normally wouldn't withhold taxes from payments made to nonemployees, but some individuals can be subject to backup withholding, and this would obligate you to do so. You might receive a notice from the IRS telling you that this is the case, and the independent contractor is also obligated to tell you so in Part II of Form W-9. Enter any amount of backup withholding you've made in Box 4.
  • Boxes 5, 6, and 7: Technically, the IRS doesn't require that you fill in these boxes, but your state's department of taxation might require a copy of the Form 1099-NEC with this information. Enter the nonemployee's state income, any state taxes you might have withheld, and identify the state or states to which you'll be reporting. Complete an additional 1099-NEC for this information if you must enter data for more than two states because the form only accommodates two.

Check with your tax professional if you must deal with backup withholding so you're sure you're doing it correctly.

Where to Get Form 1099-NEC

You can get 1099-NEC forms from office supply stores, directly from the IRS, from your accountant, or using business tax software programs. You can't use a form that you download from the internet for this form because the red ink on Copy A is special and can't be copied. You must use the official form.

​Due Dates for 1099-NEC Forms

Forms 1099-NEC must be filed with the IRS by January 31 for the previous calendar year. This deadline is the same for both paper filing and e-filing.

You may be subject to late filing penalties if you submit 1099-NEC forms after the due dates. The amount of the penalty is determined by how late you file and the size of your business. Using a payroll service provider doesn't relieve you of the responsibility to ensure that the 1099 forms are filed correctly and on time.

The penalty is at least $100 for each form with no maximum if your failure to file is found to be intentional.

If You Make an Error

Check for errors before you submit the forms to the IRS. Common errors in completing 1099 forms include using the form for the wrong year, sending the form to the wrong person or company, and failing to include all requested information.

You can simply correct the error if you make a mistake in completing a 1099-NEC form, and if you discover it before you submit the form to the IRS. Otherwise, you must submit a corrected 1099-NEC form. Check the "corrected" box at the top of the new form, and be sure to change Form 1096 if the correction affects your totals on this transmittal form.

NOTE: The information provided in this article is for general purposes to help you collect the information you'll need to prepare 1099-NEC forms. Every business situation is unique, and this information does not attempt to provide complete instructions. Talk to your tax professional about your specific situation.

Article Sources

  1. SHRM. "Employing Independent Contractors." Accessed Sept. 23, 2020.

  2. IRS. "Instructions for Forms 1099-MISC and 1099-NEC (2020)." Accessed Sept. 25, 2020.

  3. IRS. "Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs." Pages 6-10. Accessed Sept. 21, 2020.

  4. IRS. "General Instructions for Certain Information Returns." Pages 1 and 15. Accessed Sept. 21, 2020.