Who Gets A 1099-NEC? - The Full Guide
Running a business involves you paying your employees salary or wages, but you may also be required to pay out to non-employees such as independent contractors. This could be for cleaning services or building maintenance for example.
This guide looks to clear up who exactly needs to fill out a 1099- nec form and why it is so important to do so.
Who Exactly Needs To Fill Out A 1099-nec Form?
There are certain conditions that make it mandatory for your business to fill out a 1099-nec form. If the below applies to your business, you must make sure you are following the correct guidance.
Payment has been made to a person not in your employment
The payment was made for services that assist in the trade or business you run
The payments equate to $600 or more annually
The payment was made to an individual, a single member LLC, a partnership LLC or an estate
These payments do not necessarily have to be in the form of cash either. They can be non-cash benefits, such as trade for example.
It’s important to note however, that if you’ve used credit or debit payments or a third-party payment institution like PayPal, you are not required to fill out a 1099-nec form.
These institutions will fill out the reports instead on your behalf.
Responsibilities As The Payer
If you are the payer in these examples, you have certain responsibilities to ensure. These fall under four main categories:
Prior to payment, you must ask for a completed W-9 form. You will need this for the payee’s taxpayer identification number.
Upon the culmination of the calendar year, complete the 1099-nec forms. If you choose to fill out paper forms, you will also need to complete a 1096. This is almost a “cover letter” to each 1099 nec form.
File these forms with the relevant parties. Always to the Inland Revenue Service, but you may also need to file them with your state’s tax department. This must be completed before January 31 (by mail or electronically).
You must also send a copy of the completed 1099-nec form to the payee before this date.
It’s also important to note here that while the normal date is January 31, this can alter slightly depending on public holidays - so always ensure you have confirmed the deadline prior to completion.
Also read: Submitting a W2 Correction Request
Responsibilities As The Payee
If you’ve received $600 or more in one calendar year for your services, you should have received a 1099-nec from each business that you have conducted your services at.
Of course, in a similar fashion to the payer, if the payments were made via debit, credit or third party payment such as PayPal, you do not have to worry about this.
The client (the business you have completed services for) is responsible for filling out the 1099-nec form and sending it to you. If you have not received a copy of this prior to January 31 (or whatever the date is for that year), you must contact the relevant business(es).
The 1099-nec form is simply a way to report information when you are reporting your income. You therefore are not required to send this directly to the Inland Revenue Service.
Having said that, you do need to report all income to the IRS - regardless of whether you’ve received a 1099-nec form or not.
Also read: What is a 1099 NEC?
An Example Of A Non-Employee
Let’s create a scenario where Mr Smith works as a freelance journalist. During one calendar year, he worked for three months as a contractor for a newspaper and then worked an additional four months for a magazine.
Both the newspaper and magazine reported the income Mr Smith received on a 1099-nec form and then both sent copies to Mr Smith. They then filed these with the Inland Revenue Service.
Upon doing his tax return, Mr Smith reported these incomes, along with additional income he had received throughout the calendar year and then paid income tax required.
Also read: How To Fill Out a 1099 NEC
How Do You Fill Out A 1099-NEC Form?
The 1099-nec form is actually pretty easy to fill out. All you need to do is follow a five part guide.
The payer’s personal information (including taxpayer identification number and address).
The payee’s personal information (shown on the W-9 form, their taxpayer identification number, name and address).
Total payment completed in the calendar year
The federal income tax withheld
If required, the state tax information
Some of the above information may not be applicable to you so you should always clarify what exactly you need to do when you’re filling out a 1099-nec form.
Also read: File 1099 NEC Electronically
How Do You File A 1099-NEC Form?
There are different ways to file a 1099-nec form and it will come down to personal preference for your choice. However, the easiest way to do it is electronically.
If you would like to, you can pay for an e-filing service which you can find online. They tend to be inexpensive and can make things much easier for you.
If you do not wish to pay a fee though, you can use the Inland Revenue Service’s FIRE system (Filing Information Returns Electronically). All you’ll need to do is register online and follow the relevant instructions.
And of course, you can always file a 1099-nec form via mail. However, you must remember to send the “covering letter”, which is by completing, attaching and filing a 1096 form as well.
The Bottom Line
If you are a payer or a payee that needs to know about the 1099-nec forms, using the relevant information and examples above should make things a little clearer for you.
Having files in order will allow payroll to run smoother and ensure employees will receive the correct pay stubs. Also, check out our 1099 nec form generator which is another brilliant form generator which produces 1099 forms easily.
Also read: How To File A 1099-NEC Form?