Since 2020, Form 1099-NEC is the new form businesses are required to file annually with the IRS to report non-employee compensation (NEC). If you made payments to individuals or companies for services that were not your employees, you might need to file this type of return. Compensation for non-employees was formerly filed in Box 10 on Form 1099-MISC. If you are still going to use this for other payments, make sure to put information in the correct boxes, as they are in different places now. The IRS started separating Form 1099-NEC income from Form 1099-MISC since 2020 for the tax payers in 2021. Contact our available Tax Service Experts today.
One of the most common reasons you will receive a Form 1099-NEC (form 1099-MISC for previous years) is if you were an independent business owner or performed independent contractor work in the prior year. In 1983, the IRS added an additional box to the existing Form 1099-MISC to allow businesses to report payments made to self-employed individuals who worked for them during the tax year.
This would have included any independent contractors, gig workers, or sole proprietors that had previously reported their payments on Box 7 on Form 1099-MISC for past years before 2020.
How Form 1099-MISC and Form 1099-NEC are Different?
Prior to 2020, Form 1099-MISC was used to report payments, including compensation, that were not made to an employee. Starting in the 2020 tax year, non-employee compensation is no longer reported on Form 1099-MISC. Employers must instead use Form 1099-NEC.
What is Non-Employee Compensation, and what to expect from Form 1099-NEC?
Non-employee compensation is defined as the money paid to an independent contractor for the work performed. Common examples include fees, commissions, prizes, and awards for services.
IRS Form 1099-NEC is used to report any compensation paid to a non-employee by a business. There are five sections on the 1099-NEC. For example, non-employee compensation would be reported in Box 1. Box 4 will report any Federal Income Tax collected. This box should be empty unless you have an alternative way to have the tax withheld. For example, box 5 would report any state income taxes withheld from compensation.
So I’m a business owner running a company. Do I need to file Form 1099-NEC for our staff?
All businesses are required to file Form 1099-NEC for compensation of someone other than a full-time employee when you follow the following conditions. You are paying someone who is not a full-time employee of yours, You are paying for services performed in trade or business (including public agencies and non-profit organizations), You are paying a person, a partnership, an inheritance, or, in some cases, a corporation, You paid at least $600 to an individual in the course of a tax year, and you are required to file Form 1099-NEC for everyone you have back-up tax-paying employees, even if the amount is under $600.
More About Tax Form 1099-NEC
IRS Form 1099-NEC is a tax form used to report compensation from non-employees for tax years 2020 and later. Prior to the 2020 tax year, the form used to report this type of income was 1099-MISC. Here’s what you need to know about the 1099-NEC, whether you are an independent contractor or employer.
If the taxpayer did not receive a required 1099 form on the income earned–even if the business did not file form 1099-NEC – the taxpayer can choose to report it as non-business income. If the form 1099-NEC is not received, taxpayers are still liable to pay taxes on any income earned throughout the tax year. Businesses are required to send out a form 1099-NEC to a taxpayer (other than a business) that received at least $600 or more in non-employment income during the tax year. The 1099-NEC form is used to report non-employment income, including dividends paid on stock holdings or income earned by an independent contractor.
Suppose you made any payments throughout the calendar year to either a small business or a self-employed individual (an individual). In that case, you are probably required to file a tax return with the IRS. If your business paid a person or LLC at least $600 in rental payments, court settlements, or prizes or awards over a year, you must file a 1099-MISC. If your business employs a contractor and pays him or her more than $600 during the year, you are responsible for filing the new Form 1099-NEC with the IRS and sending the contractor a copy.
You must also file Form 1099-NEC for anyone you have retained federal income taxes from under reserve tax rules for any amount, even if the amount is less than $600, for that amount. So, for example, if the business sent the IRS your Form 1099, but for whatever reason, you did not get it, the IRS sends you a letter (actually, a bill) saying that you owed taxes on your earnings.
The tax payor is responsible for filling out a form 1099 tax and sending it to the IRS and the contractor. If you work with a paycheck service like Gusto to pay your contractors, they will complete and send 1099 forms to each contractor. You will send a copy to your payee and one copy to the IRS on Form 1096. The forms are supposed to be sent to the recipient (to who you paid money) and to the IRS on or before Jan. 31.
That means that you will be sending your tax payments to the IRS four times per year, plus any applicable state and local revenue departments. In other words, if you paid anyone who was not an employee for a tax year at least $600, you must report it to the Internal Revenue Service (IRS) using Form 1099-NEC. In addition, you must file a 1099-NEC form with any non-employee for whom you paid $600 or more in a single tax year for services related to your business.
When making payments to a non-employee or other business, you should always ask the person you are paying to submit a W-9 form so that they will have the information needed to complete their tax forms. Independent contractors get 1099s while employees get W-2s. Businesses must report payments to independent contractors and self-employed individuals using the 1099-NEC form.
A taxpayer might receive a 1099 form if he or she received dividends, which are cash payments paid to investors for holding stock in a corporation.