IRS Form 1099-NEC is used to report nonemployee compensation to the IRS and recipients. Recipients are typically contractors, freelancers, or otherwise self-employed people. Form 1099-NEC is an important part of year end filing, so we’ve compiled a guide to help make it easier!
Step 1: Collect Information
There is some vital information needed to complete these forms:
- Payer information
- Name
- Address
- TIN
- Recipient information
- Name
- Address
- SSN or other TIN
- Amounts paid to recipient
Step 2: Completing Form 1099-NEC
Although the IRS has fillable PDF forms available, these cannot be downloaded and used for filing. Official forms have to be ordered directly from the IRS, or, you can e-file using an IRS-authorized e-file provider.
The 1099-NEC form is made up of two main parts: the payer’s information and the recipient’s information. 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 3: Distribute Your 1099-NEC Forms
Once you’ve completed your 1099-NEC forms, they must be sent to the recipients, the IRS, and if required, to the state government(s). Each copy of the 1099-NEC serves a specific purpose and should be distributed as follows:
- 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 4: E-filing or Paper Filing
The IRS recommends e-filing as it’s faster, more secure, and offers nearly instant submission confirmation. If you opt to paper file via mail, then you must be sure to submit the filing to the correct IRS address based on your state. It is required that IRS forms and packages must be sent to the IRS via First-Class Mail. It’s also important to note that each filing and filing type must be sent separately.
Please note: E-filing is required for anyone that needs to file 10 or more forms in total across all form types.
Step 5: 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 6: Keep the Records
Keep copy C of each 1099-NEC form for your own records for at least three years. Not only is it recommended by the IRS and is a good general practice for all business owners. This ensures that financial and tax information is organized and helps easily find documents in case of an audit.
Conclusion
Correctly filing your 1099-NECs forms on time helps your business avoid potential IRS penalties. Start gathering and verifying your filing data as soon as possible to make your tax filing season as stress-free as possible.
This article is for information purposes only. Consult with a tax professional for specifics regarding your tax situation.
