Form 1099-NEC: Nonemployee Compensation

What Is Form 1099-NEC: Nonemployee Compensation?

Form 1099-NEC is the Internal Revenue Service (IRS) form used by businesses to report payments made to independent contractors, freelancers, sole proprietors, and self-employed individuals. The current form is an updated design of the 1982 form of the same name. Before 2020, all nonemployee compensation was reported in box 7 on Form 1099-MISC.

Form 1099-NEC was resurrected in 2020 to address confusion related to dual-filing deadlines of January 31st and March 31st for certain income and compensation reporting on Form 1099-MISC. This dual-filing deadline confused many payers.

Form 1099-NEC is one of many 1099 tax forms, including 1099-MISC for miscellaneous income, 1099-INT for interest income, and 1099-DIV for dividend and distribution income.

Who Can File Form 1099-NEC?

Businesses should complete a Form 1099-NEC for any nonemployee person to whom the business paid $600 or more during the year. This includes fees, commissions, prizes, or awards for services completed by independent contractors, cash payments for fish purchased from anyone engaged in the business of catching fish, or payments made to an attorney. The form must also be completed for any person from whom federal income tax has been withheld under backup withholding rules, regardless of the amount of payment. Businesses should provide the 1099-NEC to recipients by Jan. 31 of the following year.

How to File Form 1099-NEC

Payments made for services completed by independent contractors, for the purchase of fish from someone in the fishing trade or business, or fees paid to an attorney are reported in box 1 of Form 1099-NEC. If the payer business sold consumer products totaling $5,000 or more to the recipient on a buy-sell, deposit-commission, resale, or another basis, enter an “X” in the checkbox on box 2. Box 3 is to remain blank; it is reserved for use in later tax years. Federal income tax withheld during the year is reported in box 4. Boxes 5 through 7 are information for state income tax purposes.

Form 1099-NEC can be downloaded on the IRS website. Copy A of the form is in red; it is for informational purposes and Internal Revenue Service use only.

Recipients of Form 1099-NEC should use the information provided on the form to fill out the appropriate sections on their tax returns.

For sole proprietors, report this information on Schedule C (for business profit and loss) or F (for farming profit and loss). If the recipient is a partnership, the information should be used to complete Form 1065 and Schedule K-1; the partners would then complete Schedule SE (Form 1040).

If the income reported on the Form 1099-NEC is not self-employment income, but instead from a sporadic activity or hobby, report it on line 8, “Other Income,” on Schedule 1 (1040).