Report your independent contractor payments with confidence on Form 1099-NEC.
updated November 28, 2023 · 4min read
The Internal Revenue Service (IRS) requires that businesses file Form 1099-NEC to record payments made to independent contractors. The new form replaces using Form 1099-MISC for these types of payments. The 1099-MISC is used for several different types of payments—from prize winnings to crop insurance proceeds—with some having different filing deadlines than others.
Form 1099-NEC is a new form that businesses are required to file with the IRS annually to report nonemployee compensation (NEC). This means that if you've made payments to individuals or companies for services who are not your employees, you may be required to file this type of information return. Nonemployee compensation was previously filed in box 10 on the 1099-MISC form. If you'll still use it for other types of payments be sure to enter the information in the right boxes, since they're now in different places.
The IRS hasn't changed which NEC payments need to be reported, just which form you'll use. Follow the guidelines for nonemployee compensation payments listed on the IRS website. Here's an overview.
The forms are due to be sent to both the recipient (who you paid the money to) and to the IRS on or before January 31st. When the date falls on a weekend, you'll have until the end of the following business day.
You can complete 1099-NEC forms using a fillable PDF form available on the IRS website. You'll mail one copy to the payee and submit a copy of each one to the IRS with Form 1096. Software companies and online websites also provide filing and mailing services, generally for a small fee per form. If you will be filing 250 or more 1099-NEC returns, you're required to submit them electronically to the IRS.
Check your state's requirements for what you need to do to report nonemployee compensation to them. Not all states have identical requirements to the IRS. Also, you'll want to make sure that the taxpayer identification numbers used on your 1099-NEC forms match with the payee names. You can be penalized if they don't agree with what the IRS has on file. You can verify the numbers with the individual or check online with the IRS.
Keeping up with IRS regulations can be challenging for business owners, but when you take things one step at a time and utilize trusted advisors and resources to work through your situation, you're sure to figure it out. Learn more about hiring independent contractors if you work with them in your business.
by Tammy Farrell CPA CFE
Tammy Farrell is a Certified Public Accountant and Certified Fraud Examiner who enjoys researching the nuances of acc...
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