What is form 1099-NEC?
In this post, we're diving into the world of tax forms, specifically the Form 1099-NEC. It's crucial for those of you working with independent contractors to understand the requirements, and we're here to break it down in an easy-to-understand way.
Here’s the breakdown:
GLOSSARY:
W2 form
Tax form used to report compensation paid to employees.
1099-NEC form
Tax form used to report compensation paid to nonemployees.
What is a 1099-NEC?
Think of the 1099-NEC as the “cousin” to the W-2 form, but for independent contractors. If you've paid a freelancer or contractor $600 or more during the same tax year for services, this tax form is how you report compensation paid to nonemployees to the IRS.
When is it due?
The deadline for sending out 1099-NECs to your contractors and filing them with the IRS is January 31st.
Who Gets a 1099-NEC?
If you've paid a contractor/freelancer at least $600 for business-related services using cash, check, bank transfers, Zelle, CashApp, Venmo or PayPal (Friends & Family) they should receive a 1099-NEC from you.
Who should not get a 1099-NEC?
Contractors paid via a credit card, PayPal (business) or any other third-party merchant such as Stripe, Square etc should NOT be issued a 1099-NEC as these platforms usually handle the reporting by issuing a 1099-K. In general, you don’t have to issue a 1099-NEC to C-Corporations or S-Corporations (some exceptions apply).
WHAT IF YOU DON’T RECEIVE OR ISSUE A 1099-NEC?
You must report all your income even if you did not receive a 1099 form. If you forgot & missed the deadline for issuing a 1099, you may face a penalty from the IRS depending on the amount of time.
what document do i need from the contractor?
You will need a completed W9 form from your contractors in order to file 1099-NEC.
Quick Tip
Ask your contractors to complete a W-9 form BEFORE you start paying them. This will save you time (and headaches) when tax time comes around.
