Smaller businesses typically employ freelancers, contractors, and others to offer services. The payments made to these employees have to be reported to federal tax authorities, in the form of Internal Revenue Service (IRS) Form 1099-NEC.
This article will explain Form 1099-NEC and how to complete it, as well as when to mail this form to IRS and other recipients.
The definition of the Form 1099-NEC
Form 1099-NEC is used in order to provide any compensation that is paid to non-employees of a company or for business use. Non-employees can be independent contractors or freelancers. Freelancer or gig worker, or any other service supplier. Also, it includes professionals like attorneys and accountants.
The payments were previously filed on Form 1099-MISC up to 2019, however, they are now required to report on the Form 1099-NEC (sample in the following).
Who uses Form 1099-NEC?
You have to submit a Form 1099-NEC for non-employee pay if all four of the following conditions are satisfied:
- The payment was made to a person who is not your employee.
- The payment was made for services during the course of your business or trade
- The money was transferred to an estate, partnership, or individual or a the corporation.
- The amount paid to the payee was at least $600 or greater for the entire year.
Use Form 1099-NEC only to report the amount of money paid to a corporation, such as a limited liability corporation (LLC) that file taxes as a corporation or an S corporate. 1
A few examples of the types of payments that you have to declare on Form 1099-NEC comprise:
- Professional service charges for attorneys (including lawyers who are formed as corporations) accountants, architects, accountants, architects, accountants, etc.
- Fees that are paid between two professionals (fee-splitting for instance)
- Payments for services , which includes the payment of parts or materials required to provide the services , if they are related to the services
- Salespeople who are not employees of the company not repaid throughout the course of the year
You also need to submit Form 1099-NEC to anyone who you had to withhold federal income tax under the backup withholding rules in any amount that is under $600. 2
Form 1099-NEC may also be used to record the sales of consumer goods totalling greater than $5,000, which is in resales as a buy-sell deposit commission or on a different basis. The income must appear on purchaser’s small-business tax return.
The due date for Form 1099-NEC is the day of the month.
Form 1099-NEC has to be provided to each person who is paying and submitted to the IRS before January 31 of the calendar year following the tax year is declared. This means, for example, the Form 1099-NEC of 2021 has to be filed before January 31of 2022. If January 31 falls on the weekend or a holiday The form is due the following business day.
For 1099-NEC and Backup Withholding, you can download Form 1099.
Non-employees aren’t required to withhold from their paychecks, however there’s an exception to backup withholding. Withholding for backup is generally mandated by the IRS when the taxpayer is not able to give a valid taxpayer identification numbers on the W-9 forms at the time of hire. In this situation the IRS issues a backup withholding order to the employer requesting that they deduct federal income tax from the recipient at 24 percent. This withholding order is in place until it is removed through IRS. IRS. 4
How to Get the Form 1099-NEC
There are a variety of methods to obtain 1099-NEC forms:
- Utilizing tax preparation software for business
- Straight from the IRS
- From your accounting program for your business
- An accountant or CPA who is able to prepare business tax returns.
It isn’t possible to download the form via the internet as the Copy A form is created using the special red ink that has to be scanning-friendly. 5
What to Do If You Didn’t receive Form 1099-NEC
If you received a salary of more than $600 from any payee that was a non-employee You must submit Form 1099-NEC to the IRS to be included on the tax returns you file. If you received non-employee earnings and you haven’t received your 1099-NEC before the deadline of January 31, contact the individual who paid you to request it.
How to Fill out and read Form 1099-NEC
Five key components to the Form 1099-NEC
- Information about the payer
- Information about the recipient
- The amount of compensation for non-employees
- Federal tax withheld on income
- State information
Information on the payer and payee’s information includes the name address, address, and tax ID.
Box 1 Reports how much non-employee-related compensation paid throughout the year.
Box 2 Check this box when you have sold at least $5,000 to resell or for any other reason. The total amount isn’t recorded in this tax form however it’s listed on your small-business taxes (usually Schedule C).
Box 4: Reports any federal income tax that is withheld from an back-up withholding note.
Box 5 shows any state tax withheld. Box 6 is a unique Identification number that is unique to every state and
Box 7 The state’s total earnings of the non-employee throughout that period. 5
How Do I Filing Form 1099-NEC
The 1099-NEC form must be submitted to the IRS prior to January 31st, by either electronic or paper filing.
If you’re filing tax returns on paper, print them out and mail your return to IRS to the correct address based on the state in which you reside.
It is also possible to make a filing electronically with an filing information returns filed by the IRS (FIRE) system. If you’re filing more than 250 1099-NEC tax forms, you are not able to fill out paper forms. Instead, you must fill out online.
|State Filing Addresses|
|Alabama, Arizona, Arkansas, Delaware, Florida, Georgia, Kentucky, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Texas, Vermont, Virginia||Department of the Treasury Internal Revenue Service Center Austin, TX 73301|
|Alaska, Colorado, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin, Wyoming||Department of the Treasury Internal Revenue Service Center P.O.
Box 219256 Kansas City, MO 64121-9256
|California, Connecticut, District of Columbia, Louisiana, Maryland, Pennsylvania, Rhode Island, West Virginia||Department of the Treasury Internal Revenue Service Center Ogden, UT 8201|
Most Frequently asked questions (FAQs)
When will form 1099-NEC be due in the hands of IRS?
Form 1099-NEC is due as well as the IRS along with the recipient on the 31st of January of the calendar year following the tax year is declared. For instance, 1099-NEC forms for 2021 need to be submitted to the IRS and then sent to the payee before the 31st day of January in 2022.
The IRS determines sanctions due to late completion of the Form 1099-NEC. Amount of fine varies on the amount of returns filed and the time of filing. If you’re behind make your return as quickly as you can to avoid penalties.
What copies of Form 1099-NEC will be delivered to the person who received it?
If you fill out the 1099-NEC form there will be many copies. The IRS will file copy A. IRS on paper or via the internet.
Send One copy of the person who will receive it to file with the State tax agency (if your state requires the state to collect income taxes).
Copy B is to be kept by the person who is receiving it to keep their documents.
If you create Copy A electronically however, you still need to send the paper copies of Copy 1 and Copy B to the intended recipient.
How do I file a revised Form 1099-NEC?
To correct Form 1099-NEC to fix frequent errors, you’ll have to fill out a completely new form. Then, click to open the “Corrected” option at the very top. If you submitted with a paper form then you need to submit the corrected copy A along with Form 1096, to the proper IRS process center.
Certain types of errors need a different method that doesn’t involve”Corrected” or the “Corrected” field. Check out the General Instructions for Certain Returns of Information (page 12.) for information of how to fix particular errors.