Form 1099-NEC: What Independent Contractors Need to Know

Tax form 1099-NEC is relatively new, but millions of independent contractors receive it each year. Instead of reporting nonemployee compensation through Form 1099-MISC, as of the 2020 tax year, businesses with contractors file IRS Form 1099-NEC. If you do independent contracting or freelance work for a company, you probably will receive a 1099-NEC.

Read on to learn more about what a 1099-NEC is and filing requirements. Furthermore, we’ll share who receives Form 1099-NEC, when it’s due, and how to fill it out.

What is IRS Form 1099-NEC?

First, let’s answer the question, “What is 1099-NEC?”

Form 1099-NEC has re-emerged from hibernation—it hasn’t been used since 1982. NEC is short for Non-Employee Compensation. As the name implies, this form reports business payments to contractors, vendors, and freelancers throughout a tax year. Why the change? The IRS wants to separate contractor payment reporting to improve clarity of deadlines and ensure timely reporting of these payments. Thus, they redesigned the 1099-NEC and brought it back starting in the 2020 tax year.

Businesses must provide independent contractors and freelancers Form 1099-NEC and file it with the IRS by January 31. In prior tax years, a business needed to figure out which one of the various deadlines for Form 1099-MISC applied to their payments. The 1099-NEC simplifies that.

There are multiple copies – each due to different entities.

• Copy A: For the IRS
• Copy 1: For the state tax department
• Copy B: For recipient (contractors)
• Copy 2: For the recipient’s state income tax return, when required
• Copy C: For the payer

Who should file Form 1099-NEC?

If you’ve hired a contractor (someone who is NOT a W-2 employee) and paid at least $600 in a tax year, you should file Form 1099-NEC.

In contrast, if you are a contractor, you should receive a 1099-NEC from every client who paid you at least $600 in a tax year.

1099-NEC vs. 1099-MISC

So, what’s the difference between 1099-NEC vs. 1099-MISC? The 1099-MISC is still used, but not for contractor payments. Instead, the 1099-MISC is used for rentals, royalties, certain prizes and awards, professional fees, etc. MISC is short for miscellaneous income. If you still need to report those items, you may also need to file Form 1099-MISC.

1099-NEC instructions

If you’re a small business owner who has paid an independent contractor, thankfully, this tax form isn’t too difficult to fill out.

If you’re an independent contractor, the company that hired you will complete and send the 1099-NEC form to you. You will use the information on the form to help complete and file your tax return with the IRS.

Whether you’re filing the form on your own return or need to send it to contractors, Block Advisors certified small business tax pros can help.

Just need to understand what’s on the form? Below is a summary of 1099-NEC instructions.

Form 1099-NEC includes the following:

• Your business, the payor’s, information including
  • Name
  • Street address
  • Telephone number
  • Tax information number (TIN)
• Recipient’s identifying information, including:
  • TIN
  • Name
  • Street address
  • Account number (used if the business has multiple accounts for a recipient or has a FATCA reporting obligation)
• Nonemployee compensation amount
• Federal income tax amount withheld ($0 unless you have a backup withholding order from the nonemployee)
• State-specific information, like:
  • State tax withheld
  • Business state identification number
  • State income amount

NOTE: The IRS has specific instructions not to cut or separate forms.

“Being an individual with mostly freelance work, filing taxes can become quite confusing and complicated. With the help of a tax professional, the process was more smooth and simple than I could’ve imagined.”

– Rachael, Independent contractor

How to file Form 1099-NEC and when it’s due

Independent contractors receiving Form 1099-NEC: You’ll likely report your 1099-NEC income on Schedule C along with your Form 1040.

Business owners preparing Form 1099-NEC for contractors: IRS 1099-NEC is due January 31. If January 31 falls on a weekend or holiday, the form is due the next business day.

• Copy A is due January 31 to the IRS.
• Copy B of the form is due to your contractor by January 31.

This form should always be filed with the IRS alongside IRS Form 1096.

You have a few options for filing Form 1099-NEC and Form 1096:

1. Order forms from the IRS and mail them to the IRS and state treasurer
2. File electronically via IRS Information Returns Intake System (IRIS)
3. Have a tax professional help you file

Getting help with Form 1099-NEC

Whether you’ve received this form or are issuing one to a contractor, 1099-NEC is a form you don’t want to avoid. Failure to file may come with additional tax penalties.

We know taxes can be stressful. That’s why we’re here to help. Our small business-certified tax pros specialize in the intricacies of business taxes. Our tax preparation, bookkeeping, payroll, formation, and compliance services are backed by our guarantees.

Make an appointment today.

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