Online Form 1099-NEC Generator

Form 1099-NEC, Non Employee Compensation, is an IRS form that reports payments made by a business to non employee taxpayers. As a business owner, you need to know how to budget for a small business and will have to provide a Form 1099-NEC to any taxpayer you pay a cumulative amount over $600 in the tax year who is not a direct employee of the business.

Alternatively, you may be a non-employee taxpayer if you perform work as an independent contractor, sole proprietor, or freelancer. If you have been paid more than $600 by any one business in the tax year, keep your eye out for the Form 1099-NEC to be delivered to you by the business either electronically or in the mail.

The Form 1099-NEC is the newest tax form in a series of 1099 tax forms. It was released for the 2020 tax year and beyond. Prior to 2020, non employee compensation was reported on Form 1099-MISC, Miscellaneous.

The new Form 1099-NEC is a revision of an old Form 1099-NEC that had not been used since 1982. It was released to solve some confusion related to dual-filing deadlines on the Form 1099-MISC.

When non-employee income was previously reported on the Form 1099-MISC, the IRS identified a significant fraud risk relating to individuals falsifying Form 1099-MISC with small non-employee compensation and large withholdings. These taxpayers filed tax returns requesting sizable refunds early in the tax season, prior to the Mar. 31 IRS filing deadline for the Form 1099-MISC. This meant the IRS was unable to match the falsified information with a corresponding Form 1099-MISC.

In order to remedy the issue, the IRS delayed issuing refunds based on the Earned Income Tax Credit until after Feb. 15 and simultaneously pushed back the filing deadline for the nonemployee compensation, box 7, of the 1099-MISC to Jan. 31. All other payment types on the 1099-MISC still had a Mar. 31 due date.

The two filing deadlines on the same form caused confusion for many businesses. Additionally, when a business completed their Form 1099-MISC filing electronically, there was a glitch that would mark all forms as late and apply a late filing penalty if any Form 1099-MISC in the batch had income listed in Box 7. The IRS eliminated both of theses issues by releasing the new Form 1099-NEC specific to non-employee compensation.

Additionally, as the gig economy increases in the Post-2020 Era, there are more and more people working freelance jobs. Companies are outsourcing their work to freelance or independent contractors who are able to perform tasks over the internet via digital platforms. The 1099-NEC more specifically addresses this type of payment structure rather than the generic 1099-MISC.

Whether they are permanent employees or belong in the non-employees category, business makers need to pay enough attention on how to improve engagement with them. This is one of the ways you can achieve productivity and employee satisfaction.

Any business that pays more than $600 of taxable income to a non-employee, such as independent contractors or freelancers, must complete a Form 1099-NEC. Taxable income includes fees, commissions, prizes, and awards for services performed as a non employee taxpayer. The business should submit a copy of the form to both the IRS and the recipient taxpayer before the deadline.

The Four Step Test

If these four conditions are met, you generally should complete a Form 1099-NEC.

1. You made payments to non employees
2. You made the payment for services performed in the normal course of your business
3. You made the payment to an individual, partnership, estate, or, in some cases, a corporation
4. You made cumulative payments totaling $600 or more in the tax year

In order to avoid penalties, the deadline to file a Form 1099-NEC is Jan. 31. The date may vary slightly year by year, depending on whether Jan. 31 falls on a weekend. If Jan. 31 is on a weekend, the due date is shifted to the following Monday. The IRS suggests filing electronically for the quickest possible delivery.

Early Deadline and Fraud Detection

The Jan. 31. deadline improves tax refund fraud detection. The early deadline allows the IRS to verify income reported by taxpayers who file early in the tax season against the corresponding Form 1099-NEC.

30-Day Extension

If your business meets certain criteria, you can request one 30-day extension on your time to file the Form 1099-NEC with the IRS. The criteria for extension include:

• Filer suffered a catastrophic event in a federally declared disaster area
• Filer was affected by fire, casualty, or natural disaster
• Filer experienced serious illness, unavoidable absence, or death
• Filer was in first year of establishment
• Filer did not receive data on an informational form, such as a Schedule K-1, in time

There is not an automatic extension of time to file, and you can not file electronically for an extension on the Form 1099-NEC. You must fill out Form 8809, Application for Extension of Time To File Informational Returns, and mail it in by the deadline. The form should be mailed to:

Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0209

If you do not file an informational return, like a Form 1099-NEC, on time, you will be subject to penalties. Penalties are assessed on each informational return that is not filed on time. For example, if you filed one form late, you would be assessed the penalty for only one form. However, if you filed 400 forms late, you will be assessed the penalty on all 400 forms.

The amount of the penalty increases based on how late you file the form and whether you had intentional disregard for the deadline.

Penalties For Late Filing Form 1099-NEC

The penalty for late filing is $50 per form filed up to 30 days late. The penalty increases to $110 for forms filed between 31 days late and Aug. 1. Forms filed after Aug. 1 are assessed a penalty of $280 for the 2021 and 2022 tax years, increasing to $290 for the 2023 tax year.

Intentional Disregard

If the IRS determines there was intentional disregard for the deadline, the penalty is higher. The intentional disregard penalty is $560 for 2021, $570 for 2022, and $580 for 2023 tax years.

Interest Charges For Late Filing Form 1099-NEC

The penalties also carry interest charges as well. Interest charges continue to accumulate on any outstanding balance until the penalty is paid in full.

The Form 1099-NEC includes important identifying information about both the payer (business) and recipient (taxpayer). It also includes details about the non employee compensation and any federal or state tax withheld, if any.

When a business begins working with an independent contractor, they should request that the contractor fill out a Form W-9, Request for Taxpayer Identification Number and Certification. The information provided on the Form W-9 is then used by the business to create the Form 1099-NEC.

Do try out the W-9 form generator too if you ever need to generate one!

The business completing the Form 1099-NEC submits copies to both the IRS and the non employee taxpayer by the due date. Additionally, a copy goes to the state, if the state has an income tax. The IRS and state tax departments will use their copies of the Form 1099-NEC to compare what the taxpayer submits on their federal and state income tax returns.

Five Copies Of Form 1099-NEC

Each page on the Form 1099-NEC relates to a different copy, each with a specific purpose.

• Copy A - for the IRS
• Copy 1 - for state tax department
• Copy B - for recipient
• Copy 2 - to be filed with recipient's state income tax return, when required
• Copy C - for payer

When you receive a copy of a Form 1099-NEC, you should use the information to fill out your tax return. What this means to you, specifically, varies depending on whether you work as a sole proprietor or have a passthrough entity, such as an LLC or S Corporation.

Individuals Who Receive Form 1099-NEC

Taxpayers who file taxes as an individual, such as sole proprietors or single-member LLCs, will report earnings from the Form 1099-NEC on their Schedule C, Profit and Loss from Business, which accompanies the Form 1040, U.S. Individual Income Tax Return. The income reported on a Schedule C can be offset by qualified business expenses, including but not limited to the home office expense, travel expenses, and professional fees.

Passthrough Entities That Receive Form 1099-NEC

If you operate as a passthrough entity, such a multi-member LLC or partnership, you will have to file an informational tax return for your business. The informational return generates another form, which is used by the members of the LLC or partners in the partnership, to report their share of the earnings on their own personal income tax returns. The members or partners then pay taxes personally on their own share, "passing through" the tax burden from the business to the individual level.

For a multi-member LLC or partnership, the Form 1065, U.S. Return of Partnership Income, is used to report income and expenses. If one of these business entities received a Form 1099-NEC, they should report that information on the Form 1065. All of the income and expenses from the business are sent to the IRS as an "informational return" because no taxes are paid directly by the business. The Form 1065 then generates a Schedule K-1, Partner's Share of Income, Deductions, Credits Etc.

The members or partners use their Schedule K-1 information to fill out their own personal income tax return. The information from the Schedule K-1 is used to complete the Schedule E, Supplemental Income and Loss, which accompanies the Form 1040.

Form 1099-NEC relates specifically to non employee compensation. Form 1099-MISC is the form that is used to report non-employee compensation prior to tax year 2020. Form 1099-MISC is used to report sources of other miscellaneous income. Whichever form you are using, you also need to think about providing the right benefits and compensations in order to keep their morale high.

Items that might appear on a 1099-MISC include payments over $600 for rents, prizes, awards, fishing boat proceeds, medical payments, crop insurance proceeds, or attorney payments. Form 1099-MISC is also used to report royalties over $10.

Check out our 1099-MISC form generator as well if you need to create one.

The difference between a Form 1099-NEC and Form W-2, Wage and Tax Statement, is dependent on whether the recipient taxpayer is an independent contractor or an employee of the business. Worker classifications vary state by state, so be sure you are paying your workers correctly based on state laws.

If you need to generate a form W-2, head on to our W2 form generator.

Typically, employees are given more training and guidance on how to do their jobs. On the other hand, independent contractors generally have more flexibility in how and when they choose to perform their work, within the boundaries of an agreement. They are also more likely to be paid by the project or contract.

That said, as a business owner, you need to welcome both employees and non-employees as a new member to the team and give them the same respect. Treat them well and you will be rewarded with handsome benefits.

Employee and Form W-2

As an employee of a business, you would have your federal tax withheld by your employer. Your employer then pays your taxes on your behalf throughout the year.

During tax season, you would receive a Form W-2 from your employer detailing the amount of money you earned in the previous tax year and the amount of taxes withheld and paid on your behalf.

Independent Contractor and Form 1099-NEC

On the other hand, as an independent contractor, you are responsible for paying your own taxes throughout the year in the form of four quarterly estimated tax payments. During tax season, you would receive a Form 1099-NEC from any business that paid you more than $600 of taxable income in the tax year.

Businesses understand the value of streamlining processes. Our 1099-NEC generator allows you to save time, effort, and avoid penalties. When you create a 1099-NEC online, it saves the relevant information about your recipients. You can either print and mail your forms or file them electronically.

ThePayStubs website offers the best paystub generator online via fillable paystub templates and IRS form templates for your convenience. For a small reasonable fee, you can access this software that was designed by experienced accountants. Create your 1099-NEC with us today!