Form 1099-NEC is used specifically to report payments to non-employees. 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.
File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:
- At least $600 in:
– 1.Services performed by someone who is not your employee (including parts and materials) (box 1);
– 2.Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
– 3.Payments to an attorney (box 1). (See Payments to attorneys, later.)
- You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported the payment.
There are some notable exceptions to payments that are not required to be reported on a Form 1099-NEC, although they may be taxable to the recipient. These include, but are not limited to:
- Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation).
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
- Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
- Wages paid to employees (report on Form W-2, Wage and Tax Statement), Etc.
However, there are or may be some exceptions to the exceptions. It is always best to consult your tax advisor to determine if you should send out a Form W-9 to request information to a payee.
See the instructions for Form 1099-NEC by the IRS for more details.
Information Needed to Prepare Form 1099-NEC
Once you have determined who must receive a Form 1099-NEC, you can request their information through a W-9 form. A W-9 form, like W-4s for employees, will provide you with the relevant information for the recipient such as their name, address, and tax identification number.
After retrieving a completed W-9 from the non-employee, you will use the information provided and the finalized amounts paid to prepare a 1099-NEC.
Form 1099-NEC Deadline
1099-NEC forms must be filed with the IRS and submitted to their recipients by February 1, 2021 for income reported in the 2020 Tax Year.