Are you a business that pays creative freelancers, independent contractors, and other non-employees? If so, then understanding Form 1099-NEC is essential for staying compliant with tax regulations. This article breaks down everything you need to know about Form 1099-NEC and how it can be used correctly for your business’s financial reporting needs.
The Form’s History
Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.
Form 1099-NEC was reintroduced to alleviate the confusion caused by separate deadlines for Form 1099-MISC that report NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers. The IRS announced in July 2019 that, for 2020 and thereafter, it would reintroduce the previously retired Form 1099-NEC, which was last used in the 1980s.
What is Form 1099-NEC?
This form is provided to recipients and filed with the IRS to report non-employee compensation to independent contractors. Payers must complete Form 1099-NEC to report any payment of $600 or more to a recipient by the January 31 deadline.
If the following four conditions are met, you must generally report payments as nonemployee compensation:
- You made a payment to someone who isn’t your employee,
- You made a payment for services in the course of your trade or business,
- You made a payment to an individual, partnership, estate, or, in some cases, a corporation, and
- You made payments to a recipient of at least $600 during the year.
There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
Extension Form 8809
Form 8809 is used to file for an extension for all types of Forms 1099, as well as for other forms. The IRS recently released a draft of Form 8809. The instructions note that there are no automatic extension requests for Form 1099-NEC. Instead, the IRS will grant only one 30-day extension, and only for certain reasons.
Requests must be submitted on paper. Line 7 lists reasons for requesting an extension. The reasons that an extension to file a Form 1099-NEC (and also a Form W-2, Wage and Tax Statement) will be granted are:
- The filer suffered a catastrophic event in a federally declared disaster area that made the filer unable to resume operations or made necessary records unavailable.
- A filer’s operation was affected by the death, serious illness or unavoidable absence of the individual responsible for filing information returns.
- The operation of the filer was affected by fire, casualty or natural disaster.
- The filer was “in the first year of establishment.”
- The filer didn’t receive data on a payee statement such as Schedule K-1, Form 1042-S, or the statement of sick pay required under IRS regulations in time to prepare an accurate information return.
Form 1099-NEC Help
If you have questions about filing Form 1099-NEC or any tax forms, contact us. We can assist you in staying in compliance with all rules.