Form 1099-NEC

Form 1099-NEC, the Nonemployee Compensation information return, is the form US businesses use to report payments to US independent contractors and other nonemployees. Reintroduced for tax year 2020, it pulled nonemployee compensation out of Box 7 of Form 1099-MISC and into a standalone return with a tighter January 31 deadline. Reporting is required when a US payer pays $600 or more for services in the course of its trade or business, per the Instructions for Forms 1099-MISC and 1099-NEC. The current form is available from the IRS About Form 1099-NEC page.

How Form 1099-NEC Works

Form 1099-NEC has a small number of reportable boxes. The most important fields are:

• Payer. Name, address and TIN (typically EIN) of the US business making the payment.
• Recipient. Name, address and TIN of the contractor, taken directly from Form W-9.
• Box 1. Nonemployee compensation. This is the total of all reportable service payments made to the recipient during the calendar year.
• Box 4. Federal income tax withheld (used when backup withholding applied because the contractor did not provide a TIN).
• State boxes. Some states require state copies through the Combined Federal/State Filing (CF/SF) program. Other states require direct state filing.

For each US contractor paid $600 or more during the year, the payer prepares a Form 1099-NEC, furnishes Copy B to the recipient, and transmits Copy A to the IRS. If 10 or more information returns are filed in aggregate, the transmission must be electronic through the IRS IRIS portal or the legacy FIRE system, per Treasury Decision 9972.

Who Needs It

A US business must issue Form 1099-NEC to each US person it paid in the course of its trade or business if all of the following are true:

• Payment is for services (not for goods or merchandise)
• The recipient is not a US corporation (with limited exceptions, including attorney payments and certain medical and healthcare payments which require 1099-NEC or 1099-MISC even when the recipient is a corporation)
• Aggregate payments to that recipient in the calendar year are at least $600
• The recipient is a US person (US citizens, US resident aliens and US entities). Non-US contractors are documented on Form W-8BEN or Form W-8BEN-E and any reportable US-source payment is reported on Form 1042-S instead

Payers also issue 1099-NEC where backup withholding under section 3406 was withheld at the 24% rate, regardless of the $600 threshold.

Filing Deadlines

The 1099-NEC schedule is one of the strictest in the 1099 family.

• Recipient copy (Copy B). Due to the contractor by January 31 of the year following payment, per the Instructions for Forms 1099-MISC and 1099-NEC.
• IRS copy (Copy A). Due to the IRS by January 31, whether filed on paper or electronically. Unlike most other 1099 series forms, there is no later electronic-filing deadline.
• State copies. Where required, generally due on the same January 31 schedule, though a handful of states accept later filings.
• E-file threshold. Filers with 10 or more information returns in aggregate during the calendar year must e-file, effective for returns required to be filed on or after January 1, 2024, per T.D. 9972.
• Extension. A 30-day filing extension can be requested on Form 8809, but it is not automatic and is granted only in limited circumstances for 1099-NEC, per the Form 8809 instructions.

Common Mistakes

• Sending 1099-NEC for goods. 1099-NEC reports services only. Payments for inventory or merchandise to a US vendor are not reportable.
• Reporting payments to corporations. Most service payments to a US C or S corporation are not reportable on 1099-NEC. Attorney payments are the major exception (and any payment to a medical-and-healthcare-services corporation is still reportable on 1099-MISC).
• Issuing 1099-NEC to a foreign contractor. A non-US contractor receives a Form 1042-S for US-source income (or no IRS form for foreign-source services), not a 1099-NEC.
• Missing backup withholding. If a contractor never provided a Form W-9 or provided an incorrect TIN, the payer must withhold 24% backup withholding and report it in Box 4. Skipping this exposes the payer to penalties and the unpaid tax.
• Filing on paper above 10 returns. Filers above the 10-return aggregate must e-file. Mailing paper Copy A above the threshold can be treated as a failure to file.

Related Forms

• Form 1099-MISC: the related information return for rents, prizes, royalties, attorney payments and other non-service amounts.
• Form W-9: the form a US contractor provides to supply their legal name and TIN for inclusion on Form 1099-NEC.
• Form 1042-S: the equivalent information return for US-source income paid to non-US contractors.
• TIN (Taxpayer Identification Number): the SSN, EIN or ITIN that must appear on every 1099-NEC.
• EIN (Employer Identification Number): the TIN the US payer uses on its 1099-NEC filings.

Omnivoo Contract Management tracks contractor payments year-round, validates US versus foreign status from the underlying W-9 or W-8, and generates ready-to-file 1099-NEC packages by January 31 with built-in e-file thresholds.