What Is Form 1099-NEC?

Small businesses often hire freelancers, independent contractors, and others to provide services. Payments to these non-employees must be reported for federal tax purposes, on Internal Revenue Service (IRS) Form 1099-NEC.

This article describes Form 1099-NEC, how to complete it, and when to send the form to the IRS and recipients.

Definition of Form 1099-NEC

Form 1099-NEC is used to report any compensation given to non-employees by a company or for business purposes. A non-employee can be a freelancer, independent contractor, gig worker, or other service provider. It also includes professionals like accountants and attorneys.

These payments were formerly reported on Form 1099-MISC through 2019, but they must now be reported on Form 1099-NEC (sample below).

Who Uses Form 1099-NEC?

You must file a Form 1099-NEC form for non-employee compensation if all four of these conditions are met:

• Payment was made to someone who is not your employee
• Payment was made for services in the course of your trade or business
• Payment was made to an individual, partnership, estate, or corporation
• Payment made to the payee was at least $600 or more for the year

Don't use Form 1099-NEC to report payments to a corporation, including a limited liability company (LLC) filing a tax return as a corporation or S corporation.

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, for example)
• Payments for services including payment for parts or materials used to perform the services if they were incidental to the service
• Commissions paid to non-employee salespeople not repaid during the year  

You must also file Form 1099-NEC for anyone from whom you withheld federal income tax under backup withholding rules for any amount, even if it’s less than $600.

Form 1099-NEC is also used to report sales of consumer products totally $5,000 or more, for resale, on a buy-sell, a deposit commission, or other basis. This income should be reported on the recipient's small business tax return.

Due Date for Form 1099-NEC

Form 1099-NEC must be given to each payee and filed with the IRS by January 31 of the year after the tax year being reported. In other words, For example, Form 1099-NEC for 2021 must be submitted by January 31, 2022. If January 31 is a weekend or holiday, the form is due the next business day.

Backup Withholding and Form 1099-NEC

Non-employees don't have withholding taken from their payments, but there is one exception for backup withholding. Backup withholding is usually required by the IRS if a taxpayer fails to provide a correct taxpayer ID number on their W-9 form at hire. In this case, the IRS sends a backup withholding order to the payer requiring that they withhold federal income taxes from the payee at 24%. This withholding order stays in effect until it's removed by the IRS.

Where To Get a Form 1099-NEC

Here are several ways to get 1099-NEC forms:

• Using business tax preparation software
• Directly from the IRS
• From your business accounting program
• From an accountant or CPA who prepares business taxes

You can't download the form from the internet because Copy A is printed in a special type of red ink that must be scannable.

What To Do If You Don't Receive Form 1099-NEC

If you were paid $600 or more from any payee as a non-employee during the year, you must file Form 1099-NEC with the IRS as part of your tax return. If you had non-employee income and haven't received your form by the end of January, contact the payee directly to request it.

How To Fill Out and Read Form 1099-NEC

There are five key parts to Form 1099-NEC:

• Payer's information
• Recipient's information
• Non-employee compensation amount
• Federal income tax withheld
• State information

Information about the payer and payee information includes their name, address, and taxpayer ID.

Box 1: Reports the total amount of non-employee compensation paid during the year.

Box 2: Must be checked if you sold $5,000 or more for resale or other purposes. The total amount isn't reported on this form, but it's included on your small business tax return (usually Schedule C).

Box 4: Reports any federal income tax withheld from a backup withholding notice.

Box 5: Shows any state tax withheld, Box 6 is a specific identification number for each state, and

Box 7: The total state income to the non-employee for the year.

How To File Form 1099-NEC

The 1099-NEC forms must be filed with the IRS before January 31 using either paper or electronic filing.

If you are filing paper returns, print them off and send to the IRS at the address depending on your state.

You may also file electronically, using the IRS Filing Information Returns (FIRE) system. If you are filing 250 or more 1099-NEC forms, you can't send paper forms; you must file electronically.

Frequently Asked Questions (FAQs)