IRS Form 1099-NEC is a document individuals or businesses use to disclose the payments they made to self-employed individuals, including sole proprietors, freelancers, and independent contractors for the current tax year.
Important Considerations
- Threshold Amount: Businesses fill out this form for each individual to whom they pay $600 or more.
- Timely Filing: January 31, 2024, is the due date for paper or e-filing.
- Copy Retention: Retain copies of your 1099-NEC for at least four years.
What Is Nonemployee Compensation?
Any payments that meet the following four qualifications are nonemployee compensation, according to the IRS [1] :
- You paid someone who isn’t your employee.
- You paid someone for the services they performed in the course of your business.
- You paid a corporation, estate, partnership, or individual.
- You paid at least $600 to a single entity.
Non-employee compensation can include prizes, awards, commissions, benefits, fees, and other compensation types you pay to a nonemployee for the services they perform.
What Is Form 1099-NEC Used For?
Form 1099-NEC (nonemployee compensation) is for businesses to report payments of at least $600 they’ve issued to self-employed individuals within a specific tax season. Some self-employed individuals that companies create 1099-NECs for include service providers, consultants, freelancers, attorneys, and independent contractors.
Businesses also file the 1099-NEC form to report sales of at least $5,000 of consumer products to a person for resale on a deposit-commission, buy-sell, or another commission basis.
Some other examples of payments you must report on this form include the following:
- Payments made in the course of conducting business to nonemployees.
- Payments to attorneys (excluding gross proceeds paid to attorneys).
- Transit passes and parking for independent contractors (depending on if certain requirements are met, as outlined in 26 CFR § 1.132-9 – Qualified transportation fringes).
- Payments made on another person’s behalf.
- Commissions paid to lottery ticket sales agents.
- Directors’ fees.
Exceptions
A business doesn’t have to report the following payments on the 1099-NEC (Note: the recipient might still have to pay taxes on them):
- Payments to a corporation (including an LLC treated as an S or C corporation).
- Payments for freight, telegrams, storage, telephone, merchandise, or similar items.
- Payments to property managers or real estate agents.
- Awards, prizes, bonuses, and wages paid to employees (use a W-2 instead).
- Business travel allowances paid to employees.
- Military differential wage payments to employees.
- Current life insurance protection.
- Compensation for wrongful incarceration.
- Compensation for sickness or injuries by the Department of Justice.
1099-NEC vs. 1099-MISC
1099-NEC and 1099-MISC have key differences in the types of payments businesses report on them.
1099-NEC went out of use in 1982, and the Internal Revenue Service didn’t reintroduce it until 2020. Between 1982 and 2020, the IRS had businesses report all types of nonemployee compensation and miscellaneous income, including health care payments, awards, prizes, and rents, on Form 1099-MISC.
In 2020, the IRS brought back the 1099-NEC for reporting payments to self-employed individuals. From 2020, 1099-NEC is exclusively for nonemployee compensation subject to self-employment tax, and 1099-MISC is exclusively for miscellaneous income.
Consider working with a tax professional to ensure you categorize miscellaneous income and nonemployee compensation properly.
Elements of a 1099-NEC
Explore some of the elements of 1099-NEC:
- Box 1 (Total Nonemployee Compensation): Input the total amount you paid to the self-employed individual for the tax year if it exceeds $600.
- Box 2 (Consumer Products): Indicate if you sold $5,000 or more of consumer products to an individual on commission by checking the box in Box 2. You don’t need to input the dollar amount. If these conditions don’t apply to you, leave this section blank.
- Box 3 (Null): Box 3 is currently blank on 1099-NEC. Please skip this section altogether.
- Box 4 (Federal Income Tax Withheld): Specify how much federal income tax you withheld. If you didn’t withhold any, you can enter “$0.”
- Box 5 (State Income Tax Withheld): Indicate if you withheld any state income tax from the individual’s compensation. If you didn’t, you can enter “$0.”
- Box 6 (State/Payer’s State Number): Input the state’s abbreviation (like GA, OH, etc.) and the payer’s state identification number.
- Box 7 (State Income): Provide the amount of the state payment you listed in the previous box.
- Sections for Identifying Information: The left side of the form contains six boxes for identifying information. Here, you can fill out the payer’s name, phone number, address, and taxpayer identification number. Enter the same information for the recipient.
- Account Number: Enter an account number if creating 1099-NECs for recipients receiving multiple 1099 forms. If you don’t have one, you can leave it blank.
- 2nd TIN Notice Indication: The business issuing the payments should only select this box if the IRS has notified them twice within three years that the recipient provided the wrong TIN.
Please note that you don’t have to submit a 1099-NEC with boxes 5 through 7 filled to the IRS because they contain state-specific information.
How to Fill Out a 1099-NEC Form
Step 1 – Decide Who Needs a 1099-NEC
You won’t need to distribute a 1099-NEC to every person your business paid for the calendar year. Instead, you only need to distribute this form to nonemployees for whom you’ve paid at least $600.
Traditional employees will require a W-2 rather than a 1099-NEC.
Step 2 – Collect W-9s from Nonemployees
To report nonemployee compensation, you must first request contractors and other self-employed individuals to complete a W-9. When an individual fills out this form, they provide essential information, including their:
- Name and business name (if applicable)
- Mailing address
- Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), or Employer Identification Number (EIN)
Step 3 – Obtain 1099-NEC Copies
Obtain copies of the 1099-NEC to fill out. You can order copies through the IRS’s website if you file by mail. If you’re submitting less than ten forms, you can file by mail or electronically.
If you need to submit ten or more 1099-NECs, you must file electronically. You can participate in the IRS’s IRIS eFile program or use another IRS-approved provider to submit your forms online.
Step 4 – Complete Copy A and File It
Complete Copy A, the official copy to file with the IRS. If you file this form by paper, you must use IRS Transmittal Form 1096, which lets you properly transmit Copy A of your 1099-NEC.
Note: Don’t use PDF copies that you print at home to submit to the IRS. You must acquire Copy A via the IRS’s form-ordering system.
Step 5 – Complete Copy B and Distribute It
Fill out Copy B, the copy for the payee. Find the right address for the payee by reviewing the information they inputted on their W-9.
You can use your own printed PDF copies to submit Copy B. Submit Copy B timely to ensure the payee can fulfill their tax obligations for the self-employment income they earn.
Step 6 – Retain a Copy for Your Records
The 2024 version of 1099-NEC doesn’t have a Copy C for business records. Instead, you can fill out Copy B, 1, or 2 and keep it for your records.
Even though Form 1099-NEC reports nonemployee compensation, you can still abide by the IRS’s guidelines for keeping employment tax records for at least four years [2] .
Step 7 – Fill Out Copy 1
Copy 1 is for filing with your state’s tax department. The requirements will vary depending on where you live. The following states don’t require you to file your 1099-NEC with the state’s tax department:
- Alaska
- Florida
- Illinois
- Nevada
- New Hampshire
- New York
- South Dakota
- Tennessee
- Washington
- Wyoming
Other states are part of the Combined Federal/State filing program [3] :
- Alabama
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Georgia
- Hawaii
- Idaho
- Indiana
- Kansas
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- New Jersey
- New Mexico
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Pennsylvania
- South Carolina
- Wisconsin
If you live in a different state that isn’t on one of these lists, you can refer to Quickbooks’s list for filing in each state.
When Is Form 1099-NEC Form Due?
The 1099-NEC form is due January 31, 2024, whether you’re filing electronically or by mail. By this date, you must send copies to the IRS and the recipient [4] .
You must file the form by January 31 to avoid IRS penalties. Potential penalties can vary depending on how late you file, the size of your business, and the business income your company generates.
How to Correct a 1099-NEC Form
Suppose you fill out your 1099-NEC and discover you made an error, such as reporting the incorrect amount of compensation paid or inputting the payee’s TIN incorrectly. Below, you can review the steps for correcting a 1099-NEC form:
Step 1 – Mark the New Form as “Corrected”
On every copy of your 1099-NEC, you’ll see two checkboxes that say “Void” and “Corrected.” Check the “Corrected” box to indicate your intentions.
Step 2 – Input the Updated Information
Input the updated information. For example, if you reported the incorrect fees paid, write the correct amount. You can also update the taxpayer’s personal information.
Ensure the corrected form is complete with all essential information before submitting.
If you submitted a 1099-NEC by mistake and the self-employed individual didn’t receive any payments from you for the calendar year, enter their identifying information and input all zeroes in the payment sections.
Step 3 – Submit the Corrected Form
Submit the corrected form to all pertinent entities by the January 31 deadline. Mail or e-file Copy A (the official copy with red print) to the IRS, and distribute other copies accordingly to the recipient and your state’s tax department.
Retain a copy for your records. You can mark the original copy as “Void” in your records to know which copy is the most up-to-date.
Form 1099-NEC Sample
Download Form 1099-NEC as a PDF file below to start reporting nonemployee compensation payments:
Frequently Asked Questions
Are There Different 1099-NEC Versions Each Year?
The IRS issued a revised 1099-NEC in 2021, 2022, and 2024. The form revised in 2024 has a spot allowing you to indicate the calendar year, so you’d put 2023 to file for the 2023 tax year. It’s essential to use the most up-to-date form to comply with the IRS’s requirements.
Do I Need to Withhold Taxes for Self-Employed Individuals?
In most cases, self-employed individuals, including freelancers and contractors, must pay owed taxes to federal and state agencies from payments they receive from companies. However, businesses may be subject to backup withholding rules in certain circumstances.
For example, the IRS says businesses may have to withhold payments on individuals’ behalf if they don’t provide a correct TIN when required or fail to report payments properly.
What Should I Do If I Receive a 1099-NEC and I’m Not a Nonemployee?
If this scenario happens, it is most likely a mistake on the business’s part. You should contact the company that submitted the form to you.
Once the payer is aware they submitted the wrong form, they should void it and submit the correct one. For example, they may issue a W-2 if the individual is a true employee. This way, the employee can file their federal tax return properly.
Can Nonemployees Submit Tax Deductions for Business Expenses?
It’s the nonemployee’s responsibility to submit tax deductions for business expenses. They can report business expenses to reduce their taxable income when completing Form 1040.