IRS Form 1099-NEC is a tax form that reports nonemployee compensation to both the IRS and to the recipient. These recipients are typically contractors, freelancers, and self-employed individuals.
This form is an essential part of year-end tax filing, so it’s extremely important to know how to complete it. We outline this below:
Table of Contents
Step 1: Collect Information
There is some vital information needed to complete these forms:
Payer information:
- Name
- Address
- TIN
Recipient information:
- Name
- Address
- Social Security Number (SSN) or other Tax Identification Number (TIN)
Amounts paid to the recipient
Step 2: Get the 1099-NEC Form
As of 2023, the 1099-NEC form cannot be downloaded and printed from the IRS website for submission. You need to order the forms from the IRS or purchase them from an office supply store. Alternatively, you can e-file the form using an IRS-approved online platform.
Step 3: Fill Out the Form
The 1099-NEC form consists of two primary parts: the payer’s information and the recipient’s information (the contractor’s). Fill out the fields accordingly:
- Box 1: Enter the total amount you paid to the recipient over the year.
- Boxes 2-4: Currently, these boxes are not in use and should be left blank.
- Box 5: If federal income tax was withheld from the nonemployee under backup withholding rules, you would enter the amount here.
- Box 6: Enter any state tax withheld. If no state tax was withheld, leave this box blank.
- Box 7: Enter the state/Payer’s state number, if applicable.
The Payer and Recipient information should also be completed.
Step 4: Distribute the Forms
After completing all of your Forms 1099-NEC, they must be distributed to the correct entities and recipients before the deadline. There are multiple copies of the 1099-NEC form, each intended for different entities:
- Copy A: To be sent to the IRS.
- Copy 1: For the state tax department, if required.
- Copy B: For the contractor. They will use it to file their income tax return.
- Copy 2: Also for the contractor, to be sent to their state’s tax department if required.
- Copy C: For your records.
Step 5: E-Filing or Mailing
The IRS recommends e-filing as it is faster, more secure and provides instant confirmation. If you choose to mail, you must send it to the IRS and should consider certified mail to confirm delivery.
If you are filing 250 or more 1099-NEC forms, the IRS mandates that you e-file.
Step 6: State Reporting
Many states have state 1099 reporting requirements. Some of these states also participate in the Combined Federal/State Filing Program (CF/SF), which can simplify tax filing with these states.
With the CF/SF program, the IRS will forward the filing and any corrections to all applicable participating states.
For states that do not participate in the CF/SF program, filers will need to file applicable Form 1099-NEC filings directly with the state tax department. It’s always best to check with each applicable state tax department to confirm any filing requirements.
Step 7: Keep the Records
For your own records, keep Copy C of each 1099-NEC form you fill out for at least three years. It’s a good practice in case of an audit and helps keep your financial history organized.
Conclusion
Completing your Form 1099-NEC filing correctly and on time will help your business avoid potential IRS penalties. We recommend getting started collecting and verifying information as soon as possible to ensure a smooth tax filing season.
This article is for information purposes only. Consult with a tax professional for specifics regarding your tax situation.
FAQs
What is a 1099-NEC Form?
The 1099-NEC form is a sort of IRS tax shape used in the United States to file non-employee reimbursement. This typically includes payments to independent contractors, freelancers, or other self-employed people who’ve provided services for the duration of the tax year.
How can I get a 1099-NEC form?
If filers choose to submit a paper filing, then the physical copies of Form 1099-NEC must be ordered online from the IRS website. Alternatively, filers may choose to use IRS-authorized software to electronically submit their filing.
What is the deadline to file a 1099-NEC form?
The 1099-NEC form has to be filed and dispatched to both the recipient and the IRS by means of January thirty first of the year following the tax year for which the profits applies.
How to fill out a 1099-NEC form?
To fill out a 1099-NEC form, you’ll want to gather your business information (name, Employee Identification Number, address, contact info), recipient information (name, Taxpayer Identification Number, address), and amounts for each recipient. Always make sure to review the official IRS instructions before completing your Form 1099-NEC filing.
What happens if I make a mistake on the 1099-NEC?
If you’re making a mistake with the 1099-NEC, you must accurate it as quickly as possible. This involves filing a corrected shape with the IRS and supplying a duplicate to the man or woman to start with the dispatch of the form.
