What Is Form 1099-NEC?

Form 1099-NEC is a type of US tax form used to report compensation for non-employees, like contractors or freelancers (such as fees, commissions, prizes, awards, and other forms of compensation).

Unlike a W-2 form, which is used to report employee compensation, a Form 1099-NEC will only include the total amount paid to the freelancer/contractor during the tax year but will not include information on tax withholdings.

What’s included on a Form 1099-NEC?

Typically, a form 1099-NEC will include the following information:

• The total amount paid for services during the tax year
• Full name
• Address
• Taxpayer identification

Who’s required to submit a Form 1099-NEC?

Any business that pays out a minimum of $600 during the tax year to a freelancer or contractor who is a U.S citizen is required to submit a 1099-NEC.

What is the difference between 1099-NEC and 1099-MISC?

1099-NEC tax forms are used to report any non-employee compensation while 1099-MISC tax forms are used to report miscellaneous income, like rent, royalties, and awards.

Non-employee compensation for a global workforce

Non-employee compensation processes differ around the world. For companies with global operations, this can make things difficult. The two main challenges include:

• Different tax forms: Managing different tax forms doesn’t just mean filling out more than one paper. It also means navigating different tax laws and regulations, ensuring compliance across the board, and tracking any changes that may occur in the reporting process.
• Multiple currencies and payment methods: Multiple currencies and payment methods also require navigating through a maze of exchange rates, bank accounts, and payment processing platforms to ensure freelancers and contractors are paid on time

One way to get past these obstacles is by partnering with a payment distribution platform. The right third-party platform can navigate the regulatory environment of multiple countries and offer SWIFT and cheaper solutions to making payments in different currencies.

Who needs to file the 1099 NEC?

A business needs to file a 1099 NEC for each independent contractor if they meet all of the following conditions:

• The payment was made to someone who is not your employee
• The payment was made for services in the course of your trade or business
• You paid an individual, single-member LLC, partnership, or LLC taxed as a partnership
• The payments totalled $600 or more during the tax year

Generally speaking, entities do not have to file a 1099 NEC for payments to corporations or LLCs taxed as corporations.

When do you need to file 1099 NEC?

Businesses must send Copy B of Form 1099-NEC to payees and file Copy A with the IRS by January 31. Filing can be completed with paper copies or electronically.
If any of the due dates fall on a weekend or holiday, the filing deadline shifts to the next business day.

How to file Form 1099-NEC

Filing the 1099-NEC form is fairly straightforward. There is, however, information that needs to be included:

• The business’s information, including the name, street address, telephone number, and taxpayer identification number
• The payee’s identifying information, including their name, mailing address, and taxpayer identification number
• The sum of of nonemployee compensation paid during the tax year
• Federal income tax withheld, which is usually zero unless businesses must follow backup withholding rules for the worker
• State-specific information, such as any state income tax withheld, the worker’s state identification number, and the amount of nonemployee compensation applicable to that state

What is the 1099-NEC due date 2023?

The filing due date for Forms 1099-NEC is January 31, 2024, if filed by paper or electronically. 1099-NEC copies are due to independent contractors by January 31, 2024.

Why was Form 1099-NEC reinstated by the IRS?

The IRS reinstated Form 1099-NEC to clarify various filing deadlines for reporting payments types on Form 1099-MISC. The 1099-NEC has a single filing deadline for all payments that use the form. Non-employee payments such as rent payments and monetary prizes, are reported on 1099-MISC.

What is not included in Form 1099-NEC

When it comes to the 1099-NEC, businesses cannot report their employee wages or report business travel allowances for employees. These kinds of payments are reported on Form W-2. Estimated taxes are also not included and need to be calculated separately. Additional restrictions include payments to an attorney, nonqualified deferred compensation, and prizes and awards.