What is Form 1099-NEC?
Form 1099-NEC is a common type of 1099 form. 1099-NEC is a variant of IRS Form 1099 used to report taxable income for individuals that are not directly employed by the business entity or individual making the payment. For example: contractors.
Create Flawless 1099-NEC Forms – Every Single Time
You’ve probably hired your share of self-employed individuals. And if you’re being honest, you may have been tempted to forego documenting that pay – even if you claim it as a deduction on your business taxes.
We understand the temptation. Knowing when and how to report income you paid to an independent contractor can be tricky.
But order to protect your business in the event of an IRS audit, it’s important to generate timely and accurate 1099-NEC forms every year.
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1099-NEC in a Nutshell
Companies use Form 1099-NEC to report income earned by people who work as independent contractors rather than regular payroll employees, and also income paid to an attorney.
The IRS requires businesses to file a copy of the 1099-NEC form with them and mail another copy directly to the independent contractor/ attorney so that the IRS can predict how much tax revenue to expect from self-employed individuals.
The 1099-NEC serves as an informational reminder of how much an independent contractor/ attorney earned from each company they provided services to, and gives them an official form to attach to their 1040 return, in lieu of the W-2.
When Do You Need to Send a 1099-NEC Form to Service Providers?
It can be a bit confusing to know exactly when you need to send the form. The IRS stipulates that a business is responsible for sending a Form 1099-NEC for services performed by someone who is not your employee (including parts and materials), and payments to an attorney. This includes:
- Fees, commissions, prizes and awards for services performed as a nonemployee
- Other forms of compensation for services performed for your trade or business by an individual who is not your employee
- Fish purchases for cash
- Oil and gas payments for a working interest, whether or not services are performed
- Expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee
- Federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments using this form.
The following conditions must apply in order for you to need to send 1099-NECC forms out.
You Are a Business.
You don’t send a 1099-NEC to the plumber who installs your new bathroom. But if you are running a bed and breakfast that is a registered as a business, you are generally required to send 1099-NEC forms to workers who perform the same labor, as this is a legitimate business expense.
The Income is Above the Official Threshold Amount.
Under the threshold limit of $600, you are not required to mail a 1099-NEC form to independent contractors or an attorney who did work for your company.
That doesn’t mean that the contractor or attorney is absolved from paying taxes on that income. It simply means you have no official obligation to provide that information to them.
They are Independent Contractors, not Employees.
The IRS distinguishes one from the other by using three different criteria:
- Behavioral control: Does your company have a right to control what the worker does and how they perform the job?
- Financial control: Does your company have a say in the material aspects of a worker’s job? In other words, do you decide which expenses are reimbursed or who provides necessary tools and supplies?
- Contractual Relationship: Is there a written contract? Are benefits such as pension, insurance, and vacation or sick days a part of that contractual obligation?
When these three criteria are met, the IRS considers the worker an employee of your company, and you are responsible for filling out a W-2 and paying your share of the FICA taxes.
If these criteria are not met, the worker is an independent contractor who is responsible for paying their own taxes. These individuals receive a 1099-NEC.
The Service Provider is a Pass Through Legal Entity.
You are not required to send a 1099-NEC to every individual who does work for your company as an independent contractor.
Incorporated businesses — i.e., businesses that are legally considered separate entities and that file taxes as such — do not receive 1099-NEC forms. Neither do limited liability corporations (LLCs) that elect to be treated as corporations for tax purposes.
What Is the Deadline for Sending out 1099-NEC Forms?
The forms must reach the independent contractors who worked for you by February 1st of the year after they provided services. For instance, if a content provider wrote your website in 2020, the date for sending their 1099-NEC form would be February 1, 2021.
You have a little extra time to mail the IRS their copy of the form. They must receive it by March 1 if you are mailing in your taxes, or by March 31 if you are filing electronically
You’ll generate at least three copies of the form:
- Copy A goes to the IRS. If your state has income tax, you will also need to send Copy 1 to the appropriate state tax department.
- Copy B goes to the independent contractor or attorney, and you may also need to send them Copy 2 so that they can file it along with their other state income tax materials.
- Copy C is for your records.
What are the main things that go on this form?
The 1099 NEC Form is pretty simple to fill out. It generally includes …
- Your name, address and taxpayer ID number
- The name, address and taxpayer ID number of the company or individual who issued the form
- The amount of income paid to you during the year in the appropriate box, based on the type of income you received
- The amount of federal or state income tax withheld on that income, if any
What are the most common mistakes to avoid?
Unfortunately, there are a number of mistakes to avoid that contractors sometimes make with 1099 Forms.
- Misunderstanding the different Form 1099 altogether
- Not writing off all business expenses
- Not keeping appropriate records
- Counting expenses more than once
- Not reporting all your income
- Not filing on time
Do I need to use a lawyer, accountant or notary to help me?
You may think you need one, but it is not necessary to hire lawyer, accountant or notary to help you create the 1099-NEC Form. You can easily and accurately do it online. Doing it this way you can save considerable money, particularly if you have to create many copies of the form.
Why use our Form 1099 NEC generator?
The easiest way to correctly complete and verify the Form 1099 NEC is to use special services like Form Pros. It does not require the installation of additional software, and it saves you time and money.