Form 1099-NEC: A Complete Guide for Nonemployee Compensation (2024)

What Form 1099-NEC Is For

Form 1099-NEC (Nonemployee Compensation) is the IRS form businesses use to report payments made to independent contractors, freelancers, and other self-employed individuals. Think of it as the "W-2 for non-employees." The form was reintroduced in 2020 to specifically handle nonemployee compensation, which was previously reported on Form 1099-MISC. IRS.gov

Who needs to file? If your business paid $600 or more during the tax year to someone who performed services for you but wasn't your employee, you must file Form 1099-NEC. This includes payments to:

• Independent contractors and freelancers
• Consultants and advisors
• Directors receiving fees
• Attorneys for legal services (even if they're a corporation)
• Vendors who provided services rather than products

Who receives it? The independent contractor or service provider receives Copy B of the form, showing how much they were paid. They'll use this information to report their income when filing their personal tax return. IRS.gov

When You’d Use Form 1099-NEC (Late/Amended Filing)

Standard deadline: The IRS requires Form 1099-NEC to be filed by January 31 each year, covering the previous tax year's payments. This deadline applies whether you file on paper or electronically—there's no extension for this form. Recipients must also receive their copies by January 31. IRS.gov

Correcting mistakes: Discovered an error after filing? You'll need to file a corrected form. There's no separate deadline for corrections—file them as soon as you discover the mistake. To correct a 1099-NEC, prepare a new form with the correct information, check the "CORRECTED" box at the top, and submit it to the IRS and the recipient. Never check the "VOID" box when correcting—that tells IRS scanners to ignore the form entirely. IRS.gov

Late filing: If you miss the January 31 deadline, file as soon as possible. While you'll face penalties (explained below), submitting late is better than not filing at all.

Key Rules or Details for 2024

• The $600 threshold: You must file Form 1099-NEC if you paid $600 or more in nonemployee compensation during the year. Payments under $600 don't require reporting, though recipients must still report all income on their tax returns. IRS.gov
• Electronic filing mandate: For tax year 2024, if you file 10 or more information returns (including all types of 1099 forms combined), you must file electronically. This threshold was lowered from 250 forms to increase e-filing. The IRS offers several electronic filing options, including the Information Reporting Intake System (IRIS). IRS.gov
• Corporate exception with a twist: Generally, you don't need to file 1099-NEC for payments to corporations. However, attorney fees are a major exception—you must report payments to attorneys regardless of whether they're incorporated. Other exceptions include medical and health care payments. IRS.gov
• Taxpayer Identification Number (TIN) requirement: You must collect the contractor's TIN (Social Security Number or Employer Identification Number) using Form W-9 before paying them. If they refuse to provide it, you're required to withhold 24% of their payment for backup withholding. IRS.gov
• What doesn't get reported: Credit card payments, employee wages (use Form W-2), merchandise purchases, rent paid to property managers, and payments to tax-exempt organizations don't belong on Form 1099-NEC.

Step-by-Step (High Level)

Step 1: Collect information throughout the year

Before paying any contractor, have them complete Form W-9, which provides their name, address, and TIN. Keep these W-9s on file—you'll need them at year-end.

Step 2: Track your payments

Maintain records of all payments to nonemployees. Your accounting software can typically generate reports showing who received $600 or more during the year.

Step 3: Prepare the forms

In January, complete Form 1099-NEC for each qualifying contractor. Box 1 reports the total nonemployee compensation. Other boxes include federal income tax withheld (Box 4) and state tax information (Boxes 5-7).

Step 4: File with the IRS by January 31

Submit Copy A to the IRS either electronically (recommended for 10+ forms) or by mail. If filing on paper, you'll also need Form 1096 as a transmittal cover sheet.

Step 5: Send copies to recipients by January 31

Provide Copy B to each contractor so they can report the income on their tax return. You can mail or, with their consent, email the forms. IRS.gov

Step 6: Retain your records

Keep Copy C for your files for at least three years.

Common Mistakes and How to Avoid Them

Incorrect or missing TINs

This is the most common mistake. Always verify the TIN matches the name exactly as it appears on the contractor's tax records. The IRS offers a TIN Matching service to verify information before filing. Mismatched TINs trigger IRS notices and potential backup withholding requirements. IRS.gov

Missing the January 31 deadline

Unlike Form 1099-MISC (which has different deadlines for different boxes), Form 1099-NEC has a hard January 31 deadline with no extension. Set calendar reminders and start preparing forms in early January.

Reporting in the wrong box

Nonemployee compensation goes specifically in Box 1. Don't confuse this with other income types that belong on Form 1099-MISC. Box 2 is only for noting direct sales of $5,000 or more of consumer products for resale.

Forgetting state requirements

Most states require their own copies of Form 1099-NEC. Check your state's specific filing requirements and deadlines, which may differ from federal rules.

Not filing for corporations (attorney exception)

Remember the attorney exception! Even if your lawyer is incorporated, you must file Form 1099-NEC for their fees.

Including personal payments

Only report payments made in the course of your trade or business. Personal payments to contractors for work on your home don't require Form 1099-NEC.

What Happens After You File

For businesses (the payer): After submitting forms to the IRS, you're done unless the IRS contacts you about discrepancies or missing information. If you made errors, file corrected forms immediately. The IRS matches information from 1099 forms with recipients' tax returns, so accuracy matters.

For contractors (the recipient): When you receive Form 1099-NEC, verify the information is correct. If you spot errors, contact the business immediately to request a corrected form. Report the income on Schedule C (Profit or Loss from Business) or Schedule F (Farm Income) when filing your Form 1040. You'll also need to calculate and pay self-employment tax on this income. IRS.gov

Penalties to know about (for 2024 filings):

• $60 per form if you file correctly within 30 days of the deadline (maximum $683,000 for large businesses, $232,500 for small businesses)
• $130 per form if you file after 30 days but by August 1 (maximum $2,049,000 for large businesses)
• $340 per form if you file after August 1 or not at all (maximum $4,098,500 for large businesses)
• $660 per form minimum (or 10% of the income reported) if the IRS determines you intentionally disregarded filing requirements—with no maximum penalty IRS.gov

Small businesses (average annual gross receipts of $5 million or less) face lower maximum penalties.

FAQs

Do I need to send 1099-NEC to an LLC?

It depends on how the LLC is taxed. If the LLC is taxed as a sole proprietorship or partnership, yes. If it's taxed as an S-corp or C-corp, generally no (except for attorneys). Check the W-9 form—it indicates the tax classification.

Can I email Form 1099-NEC to contractors?

Yes, but only with the recipient's prior consent to receive forms electronically. The consent must be explicit, and the form must be provided in a format they can easily access, save, and print (typically PDF). Many businesses still mail paper copies to avoid consent complications. IRS.gov

What if I paid someone exactly $600—do I file?

Yes. The threshold is "$600 or more," so exactly $600 requires filing Form 1099-NEC.

I forgot to get a W-9 before paying. What now?

Request the W-9 immediately. If the contractor refuses or doesn't respond, you're required to start backup withholding at 24% on future payments. You should still attempt to file Form 1099-NEC with whatever information you have, though you may face penalties for missing TINs.

Do I file 1099-NEC for reimbursements?

Generally no. If you reimbursed a contractor for specific expenses they incurred on your behalf (like travel costs), and they provided documentation, those reimbursements aren't taxable compensation and shouldn't be reported on Form 1099-NEC. However, if you paid a flat fee that included both services and expenses, report the entire amount in Box 1.

What's the difference between 1099-NEC and 1099-MISC?

Form 1099-NEC specifically reports nonemployee compensation (Box 1). Form 1099-MISC reports other types of income like rents, royalties, prizes, and medical payments. Before 2020, nonemployee compensation was reported on 1099-MISC Box 7, but it now has its own dedicated form. IRS.gov

Can I request an extension to file Form 1099-NEC?

In extremely limited circumstances, the IRS may grant a 30-day extension if you file Form 8809 (Application for Extension of Time to File Information Returns) before the January 31 deadline. However, extensions are granted only for exceptional situations like natural disasters, not routine business reasons. IRS.gov

For more information and to download forms, visit the official IRS website at IRS.gov/Form1099NEC.

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