What is a 1099-NEC form?
The 1099-NEC is a tax information form generally used to report non-employee compensation.
Who files a 1099-NEC form?
The company or business owner that makes payments to the service provider or contractor for their services is required to report those payments to the IRS and also send a copy to the service provider or contractor.
Many businesses that have previously filed the 1099-MISC to report non-employee compensation in Box 7 will use the 1099-NEC starting this tax year.
Who receives a 1099-NEC form?
The service provider or contractor receives a copy for their records and the IRS also gets a copy—either through electronic filing or paper mailing. Typically, companies are only required to send 1099-NECs to service providers or contractors who’ve been paid $600 or more in a calendar year and are based in the US or US taxpayers.
The deadline to report 2020 tax forms to the IRS and provide them to the recipient is February 1, 2021.
State filing considerations for 1099-NEC
Form 1099-NEC will not be included in the IRS 1099 Combined Federal/State Filing Program. This means that the IRS will not forward information returns from the 1099-NEC to participating states, so businesses who file the 1099-NEC may need to directly report this information with states. We recommend consulting a tax advisor to determine your state filing requirements.
Mailing vs. e-filing 1099-NECs with the IRS
Anyone issuing more than 250 forms is required to e-file with the IRS. Even if fewer than 250 are being filed, the IRS actually prefers e-filing.
IRS penalties ranging from $50 to $270 per form may apply for each instance where you:
Don’t file an information return with the IRS by the deadline
Don’t provide the recipient a statement by the deadline
Don’t report a Taxpayer ID (TIN)
Report an incorrect TIN
Report incorrect information
Don’t provide the recipient with all required information
Don’t e-file with the IRS when required to e-file
Larger penalties may be enforced where there is evidence of intentional disregard or neglect.
This article is neither legal advice nor tax advice. We recommend that you speak to your tax advisor with any questions or concerns around tax reporting.