Mastering Form 1099-NEC: The Essential Guide

Form 1099-NEC is used to report non-employee compensation amounts to the IRS. A non-employee is defined as a person or business who is not employed by your company, such as independent contractors, freelancers, or outsourcing companies. Learn more about determining who should receive a Form 1099-NEC by navigating to our article “Who receives a Form 1099-NEC?”

Alternatively, if you need to report income amounts made by employees, then you should use Form W-2 instead.

Imafe of Form 1099-NEC
Image of Form 1099-NEC, Nonemployee Compensation

What information is reported on Form 1099-NEC?

A Form 1099-NEC includes the name, address, and TIN of both the payer and the recipient. It has a box for non-employee compensation amounts, as well as a box for direct sales totaling more than $5,000 of products for resale. This form also includes boxes for state and federal taxes withheld.

Review what information is required using our companion article Gathering Information to Prepare Form 1099-NEC.

Who needs to file Form 1099-NEC with the IRS?

A Form 1099-NEC should be filed for each person:

  • To whom you have paid at least $600 during the course of business during the year for:
    • Services performed by someone who is not your employee (including parts and materials)
    • Payments to an attorney
  • From whom you have withheld any federal income tax under backup withholding rules, regardless of the amount of payment.

Form 1099-NEC or 1099-MISC can be used to report sales totaling $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale.

Who needs to file Form 1099-NEC with the state?

Along with the federal filing and furnishing requirements, many states have individual requirements as well.

If you’ve chosen to e-File using the IRS FIRE (Filing Information Returns Electronically) system and enrolled in the Combined Federal/State Filing Program (CF/SF), any applicable forms will be forwarded to the corresponding states.

Some states have additional requirements that the CF/SF program doesn’t fulfill. It’s important to always verify that your state and form type support the CF/SF program, and always check for any additional action needed to meet state requirements.  

Please note that employers can only use the CF/SF program when e-filing, not when paper filing.

When is the deadline to file with the IRS?

Traditionally, the filing and furnishing deadline for Forms 1099-NEC is January 31st.

If this deadline falls on a weekend or legal holiday, then the due date is typically the following business day. Check out our annually updated deadlines article for the most up-to-date information.

Can I submit a paper filing?

Employers may choose to paper file their Form 1099-NEC filing to the IRS if their total form count is less than the 250-form threshold. E-filing is encouraged by the IRS, but if you have less than 250 forms to file, then paper filing is an option.

Make sure to include a transmittal Form 1096 when choosing to paper file, and only include Copy A of the Forms 1099-NEC. As shown above, Copy A is the red ink copy, and blank forms can be ordered from the IRS. If you have any questions about completing the transmittal form, check out our Essential Guide: Mastering Form 1096.

Determining where to send your filing is dependent upon the filer’s address; specifically, the state. Find your state in the graphic below for the correct IRS mailing address for your filing.

Mail In Form 1096 & 1099 by State
Mail-In Form 1096 & 1099 by State

If you’re wondering why there are so many different copies when the IRS only needs one type (Copy A), check out File and Distribute Form 1099 for more information.

How is the mailable 250-form threshold calculated?

Businesses reporting less than 250 forms may opt to mail in Copy A directly to the IRS. It’s important to note that paper filing is slower, while e-Filing is much faster AND recommended by the IRS.

It’s important to note that paper filing is much slower than e-Filing, so it will take longer to receive results, errors, and make corrections.

The 250-form threshold applies to each form type separately. For example, a business filing 200 Forms 1099-MISC and 200 Forms 1099-A will still fall under the 250-form threshold, because each type is counted independently. However, if one type of form is above the 250-form threshold, then that type must be sent electronically.

Similar to how the 250-form threshold is calculated, no form type shares the same cumulative form counts – even original forms and corrections are counted separately. For example, a business that reported 500 Forms 1099-MISC is required to e-File because the form count is over 250. Considering that an e-File has a quicker turnaround time, the IRS may return 50 forms that need a correction. In this case, the business may choose to file these 50 corrections via mail, because these 50 forms now fall under the 250-form e-File threshold.

Although, it’s important to note that the IRS generally recommends filing the corrections using the same medium as the original forms. If you e-filed the original forms, then you should e-file the corrections and vice versa if the original forms were paper filed.

IRS Mail in Threshold
How to calculate the IRS mail-in threshold

What are the requirements for paper filing?

The following is a short list of requirements for filing via mail:

  • Handwritten forms are accepted but must be legible for machine processing
  • Data must be in the middle of blocks
  • Do not use “$” for reporting amounts
  • Do not use “0” or “None” for blank reporting
  • Do not staple or fold forms

Please note that this is just a sample. There are entire publications filled with requirements that businesses must follow when filing forms with the IRS. Paper filing can be cumbersome, so we recommend finding an e-Filing software provider.

Due to the extensive requirements that must be followed for the filing to be accepted, we do not recommend sending forms by mail.

Can I download Form 1099-NEC?

If you are looking to download a copy of the form to distribute to your recipients, then yes, you can download a PDF version of this form from the IRS website. This copy can be completed and printed out to furnish to recipients.

It is important to note that this PDF copy is not sufficient for paper filing. When submitting a paper filing, the forms are scanned by a machine which requires that the form itself meet certain requirements, such as the aforementioned red ink. We recommend ordering forms directly from the IRS to ensure that you are submitting the correct type of form.

Can I submit a filing electronically?

Yes, of course! E-filing is encouraged by the IRS and offers many benefits. These benefits include immediate submission, quick turnaround time, status updates, and more.

E-filing can be a requirement for some filers. If filing more than 250 forms 1099-NEC, then you must submit your filing electronically.

If choosing to submit your filing electronically, be sure to find an authorized Form 1099-NEC software provider to make e-filing quick and easy!

What are the penalties for not filing or filing late?

If you are required to file these information returns and fail to file by the due date, then you may be subject to the following penalties:

  • $50 per information return if you correctly file within 30
    • Maximum penalty $588,500 per year
  • $110 per information return if you correctly file more than 30 days after the due date but by August 1;
    • Maximum penalty $1,766,000 per year
  • $290 per information return if you file after August 1 or you do not file required information returns;
    • Maximum penalty $3,532,500 per year

IRS General Instructions for Certain Information Returns

There are some exceptions to the penalty, though. More information regarding exceptions can be found in the IRS instructions.

Fines can accumulate pretty quickly! Check out our graphic below to see what this can look like for a small business with only 10 forms to send out.

IRS Failure to File Graph
IRS Failure to File Fine Amounts

How do I make a correction?

It is important that you take the time to review the information you are reporting on your Forms 1099-NEC for accuracy before distributing and filing, including the payment amounts and taxpayer information. This will minimize the risk of common errors, which can result in your business incurring penalties and fines.

Even with careful reviewing, mistakes can happen! If your filing has errors, you can easily make corrections to your Forms 1099-NEC.

  • If you submitted your original filing electronically, then you should edit your filing accordingly with the original vendor.
  • If you submitted your original filing via mail, then you should complete a new form and include the updated information.
    • Once this has been completed, simply check the “Corrected” box at the top of the form! Always include a new Transmittal Form 1096 when mailing in corrections to the IRS.

Before you can consider your correction complete, an updated copy of the form must be provided to the recipient as well. This ensures that all parties have updated information.

Conclusion

Once you have submitted these forms to the IRS, either electronically or via mail, and have received your “Accepted” status, then you have met all of the IRS requirements for these forms.

If you’re looking for a broken-down 1099-MISC vs 1099-NEC guide in a downloadable format, make sure to download our PDF guide below.

BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.

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