Small businesses often hire freelancers, independent contractors, and others to provide services. Payments to these non-employees must be reported for federal tax purposes, on Internal Revenue Service (IRS) Form 1099-NEC.
Who Uses Form 1099-NEC?
You must file a Form 1099-NEC form for non-employee compensation if all four of these conditions are met:
1. Payment was made to someone who is not your employee
2. Payment was made for services in the course of your trade or business
3. Payment was made to an individual, partnership, estate, or corporation
4. Payment made to the payee was at least $600 or more for the year
Don’t use Form 1099-NEC to report payments to a corporation, including a limited liability company (LLC) filing a tax return as a corporation or S corporation.
Some examples of payments you must report on Form 1099-NEC include:
Professional service fees to attorneys (including law firms established as corporations), accountants, architects, etc.
Fees paid by one professional to another (fee-splitting, for example)
Payments for services including payment for parts or materials used to perform the services if they were incidental to the service
Commissions paid to non-employee salespeople not repaid during the year
You must also file Form 1099-NEC for anyone from whom you withheld federal income tax under backup withholding rules for any amount, even if it’s less than $600.
Form 1099-NEC is also used to report sales of consumer products totally $5,000 or more, for resale, on a buy-sell, a deposit commission, or other basis. This income should be reported on the recipient’s small business tax return.
Due Date for Form 1099-NEC
Form 1099-NEC must be given to each payee and filed with the IRS by January 31 of the year after the tax year being reported. In other words, For example, Form 1099-NEC for 2021 must be submitted by January 31, 2022. If January 31 is a weekend or holiday, the form is due the next business day
What To Do If You Don’t Receive Form 1099-NEC
If you were paid $600 or more from any payee as a non-employee during the year, you must file Form 1099-NEC with the IRS as part of your tax return. If you had non-employee income and haven’t received your form by the end of January, contact the payee directly to request it.