What Is Form 1099-NEC?
Keeping tabs on payments to freelancers and contractors isn’t just good business—it’s a requirement. Form 1099-NEC is your go-to tool for reporting nonemployee payments to the IRS and the workers you hire.
If your organization paid over $600 for services this year or withheld federal income tax from any payment (regardless of amount), it’s time to file a 1099-NEC.
Remember this form covers any workers you paid who are not on your employee payroll, for instance, an attorney you may have hired. Companies may also use it to report consumer product sales to individuals who plan to resell them.
What Is Nonemployee Compensation?
The IRS uses four conditions to determine whether a business should report a payment using Form 1099-NEC. If the payment meets all four criteria, the business typically files a 1099-NEC. Payments qualify as nonemployee compensation if the business pays a worker who:
- is not an employee of the organization
- provides services used for your business’s organization
- receives payments as an individual, partnership, estate, or eligible corporation
- earns $600 or more in payments during the tax year
Examples of nonemployee compensation include service fees paid to freelancers and commissions or bonuses awarded to independent contractors. Prizes and awards tied to services also go on a 1099-NEC. Meanwhile, you don’t have to file a 1099-NEC for personal payments—it’s only required for payments tied to a company’s trade or business.
What About Compensation for a Board of Directors?
A company may also report its board of directors’ compensation on a 1099-NEC. By nature, an organization’s board of directors consists of nonemployees.
How to Fill Out Form 1099-NEC
Fortunately, Form 1099-NEC isn’t quite as lengthy as some other IRS tax forms. That makes it a bit easier to complete.
1. Identify 1099-NEC Recipients
Determine which of your payees meet the requirements for a 1099-NEC. Next, calculate how much you paid each of them. You’ll complete a 1099-NEC for each qualifying payee who received at least $600 from your organization.
However, you shouldn’t immediately ignore any nonemployee payments that fall below the $600 minimum. Any nonemployee payment requires a 1099-NEC if your business withheld federal income taxes from it.
Do Employees Get a 1099-NEC?
No. Employees receive a W-2 form, which reports employee-specific earnings for a tax year.
2. Provide Your Payer Identification Information
In the top left-hand box of Form 1099-NEC, enter your organization’s name, street address, city, state, country, ZIP code, and phone number. List your payer tax identification number (TIN) in the “Payer’s TIN” box.
3. Indicate Recipient’s Information
Ask the payee to complete Form W-9, which allows them to provide their information. Use this form to complete the recipient’s information on the 1099-NEC.
List the payee’s TIN in the “Recipient’s TIN” field. Then, enter the recipient’s name in the “Recipient’s Name” box. Document the recipient’s street address and city, state, country, and ZIP code in the corresponding fields.
If you have multiple accounts for one recipient, you may complete multiple 1099-NEC forms for them. List a unique account number on each form to indicate that you issued payments to them through different systems or departments. You only need to use one 1099-NEC form per recipient if you issued multiple payments but for the same purpose.
2nd TIN Not. Box
Check the “2nd TIN Not.” box if you’ve received two notices within the last three years of an incorrect TIN for the recipient. A checkmark in this box tells the IRS that you tried to comply and get the right TIN from the recipient but received two notices that it’s incorrect.
4. List Total Nonemployee Compensation
In Box 1, enter the recipient’s total nonemployee compensation for the tax year. The amount should be at least $600 or more. The payee will use their copy of the 1099-NEC to complete their federal income tax return with Form 1040.
If you made at least $5,000 in sales of consumer products to the payee for resale, check Box 2. You don’t need to enter the total sales amount. The checkbox is sufficient for the IRS, as it tells them to expect the reseller to report the income from the resale.
Alternatively, you can report any direct sales totaling at least $5,000 on Form 1099-MISC. Note that you only need to report such sales on either Form 1099-NEC or Form 1099-MISC, not both.
5. Write Any Federal Tax Withholdings
If you withheld any money from the recipient for federal taxes, write the total withholding in Box 4.
What About Box 3?
Box 3 is intentionally left blank, so you don’t need to fill it out.
6. Provide Any State Information (Optional)
You may use Box 5 to note any money withheld from the recipient’s earnings for state income taxes. In box 6, you may list the payee’s state abbreviation and state tax identification number. Use Box 7 to indicate the total payment made to the recipient’s state for taxes.
The IRS maintains that state information is optional. However, some states require organizations to submit 1099-NEC forms to the state tax department. If you’re unsure whether you need to report state information to a local tax department, check with a qualified tax advisor. Note that some states don’t have income tax, so there’s no need to enter information into the boxes.
Differences Between Form 1099-NEC & Form 1099-MISC
For a long time, businesses used Form 1099-MISC to report all miscellaneous payments, including those made to freelancers and independent contractors. That changed in the 2020 tax year when the IRS re-introduced Form 1099-NEC. The reinstated form makes it easier for business payers and payees to track payments and income.
Today, businesses use Form 1099-MISC for all payments that don’t involve nonemployee compensation. That can include rent, royalties, and medical and healthcare expenses. Payments for nonemployee services go on Form 1099-NEC.
How to File Form 1099-NEC
The IRS requires businesses with 10 or more information returns to file electronically. Information returns include W-2s, 1099-MISC forms, 1099-NECs, and other similar tax documents.
You can complete electronic filing via the IRS Information Returns Intake System (IRIS). It’s free to use, but you’ll need to apply for an IRIS Transmitter Control Code (TCC). Some third-party providers also facilitate Form 1099-NEC filings through their software.
The deadline for filing Form 1099-NEC with the IRS is January 31, 2025, for the 2024 tax year. You must also provide a copy to your recipient payees by this date.
Filing by Mail
If your organization has fewer than 10 information returns, you may submit them through the mail to the appropriate IRS processing center.
If you opt for paper processing, each 1099-NEC contains four copies. The red copy A goes to the IRS. You cannot fill out the red copy on your own, as it requires special ink and paper. You can order free copies from the IRS or buy them from approved retailers.
Filing electronically lets you bypass the completion of the IRS-specific red copy.
You can fill out the other three copies with normal pen and paper. Copy 1 goes to the state tax department, if applicable. Recipient payees receive Copy B and Copy 2. The payee may attach Copy 2 with their state tax return if requested.
What Happens if I Miss the Filing Deadline?
Missing the IRS filing deadline may result in a penalty. The fee ranges from $60 to $630 or more, depending on how late you are and whether you intentionally disregarded the deadline. Penalties are on a per-form basis, so if you have several Form 1099-NECs to file, you may incur a fee for each one that’s late.
On top of the penalties, the IRS may charge interest. The interest accumulates until you pay off the balance of your account.
Form 1099-NEC Checklist
Follow these simple steps when completing your organization’s 1099-NEC forms:
- Ask individuals who receive nonemployee compensation from your business to complete Form W-9, which indicates their contact information and tax identification number (TIN).
- Identify which payees should receive a Form 1099-NEC and tally their earnings for the 2024 tax year.
- Complete a Form 1099-NEC for each payee. Include contact information for your organization and the recipient, plus the total amount paid for the year.
- Indicate any withholdings for federal and state taxes.
- Submit a copy of each completed 1099-NEC to the IRS and the payee by January 31 to avoid penalties.
Legal and Tax Considerations
LegalTemplates offers baseline information businesses can use to start the Form 1099-NEC filing process. You can create a 1099-NEC for each individual you paid more than $600 for services in 2024. Store each form in your account and distribute them by the deadline of January 31, 2025.
However, you may have unique concerns we can’t address. We recommend consulting an experienced tax advisor who can provide specific guidance for your business. That way, you’re fully apprised of your responsibilities concerning Form 1099-NEC.
Frequently Asked Questions
How Do I Correct an Error on a 1099-NEC After I Already Filed It?
Obtain a new form and mark “Corrected” at the top. Provide the most up-to-date information and submit it to the recipient and the IRS.
What If My Contractor Doesn’t Provide a TIN?
If a contractor doesn’t submit their TIN after you request it via Form W-9, you may need to withhold backup withholding at a rate of 24% from the payments you submit to them.
If the contractor applied for a TIN but hasn’t received it yet, you can write “Applied For” in the TIN field.
