What Form 1099-NEC Is For

Form 1099-NEC (Nonemployee Compensation) is a tax document businesses use to report payments made to independent contractors, freelancers, and other self-employed individuals. The IRS reintroduced this form in 2020 after discontinuing it decades earlier, separating nonemployee compensation reporting from Form 1099-MISC to streamline the filing process.

If you hired someone to perform services for your business who isn't your employee, you'll likely need to file Form 1099-NEC. This includes payments to consultants, freelance writers, graphic designers, plumbers, attorneys (for their services), and many other service providers. The key distinction is that these workers control how they complete their work and aren't on your payroll—meaning you don't withhold income tax, Social Security, or Medicare from their payments.

The form serves two essential purposes: it reports income to the IRS so the agency can verify that recipients properly report and pay taxes on their earnings, and it provides recipients with documentation they need to file their own tax returns. Both the payer (the business making payments) and the payee (the person receiving payment) receive copies of the form. IRS.gov

When You’d Use It (Late/Amended Filing)

Standard Filing Timeline

For the 2021 tax year, Form 1099-NEC had to be filed with the IRS by January 31, 2022—whether filing on paper or electronically. This same deadline applied to furnishing copies to recipients. Unlike Form 1099-MISC, which has different deadlines depending on filing method, Form 1099-NEC has a uniform January 31 deadline for all filers. IRS Instructions 2021

Late Filing

If you missed the January 31 deadline, you should file as soon as possible to minimize penalties. The IRS assesses tiered penalties based on how late you file: $50 per form if filed within 30 days after the due date, $110 per form if filed between 31 days late and August 1, and $280 per form if filed after August 1 or not filed at all. For intentional disregard of filing requirements, penalties jump to $560 per form with no maximum cap. IRS Penalty Information

Amended/Corrected Returns

If you discover errors after filing—such as wrong payment amounts, incorrect taxpayer identification numbers (TINs), or missing information—you must file a corrected Form 1099-NEC. For paper corrections, follow the procedures in Part H of the 2021 General Instructions for Certain Information Returns. For electronic corrections, see IRS Publication 1220. Important: Never check the "VOID" box when filing a correction; doing so causes IRS scanning equipment to ignore the form entirely, meaning your correction won't be processed.

Key Rules for 2021

Reporting Threshold

You must file Form 1099-NEC if you paid $600 or more during the calendar year to any single nonemployee for services performed in your trade or business. This threshold applies to the total annual payments, not individual transactions.

What Must Be Reported

Box 1 reports nonemployee compensation—the total amount paid for services. Box 2 may be used to report direct sales of $5,000 or more of consumer products for resale (though this can alternatively be reported on Form 1099-MISC, Box 7). Box 4 reports any federal income tax withheld under backup withholding rules.

Who Gets Reported

Generally, you must report payments to individuals (including sole proprietors), partnerships, and limited liability companies (LLCs). However, there's a major exception: payments to corporations usually don't require Form 1099-NEC, except for payments to attorneys and law firms. Legal service providers must receive Form 1099-NEC regardless of their business structure. IRS Instructions 2021

Exempt Payments

You don't need to file Form 1099-NEC for payments made with credit cards or through third-party payment networks (these are reported on Form 1099-K instead), payments to employees (use Form W-2), personal payments not made in the course of business, or payments to tax-exempt organizations and government entities.

Electronic Filing Requirements

For 2021, if you filed 250 or more information returns of any type, you were required to file electronically. This threshold has since been reduced for subsequent years.

Step-by-Step (High Level)

1. Gather Information Throughout the Year

Before hiring a contractor, have them complete Form W-9 (Request for Taxpayer Identification Number and Certification). This provides their legal name, business name (if applicable), address, and TIN—either a Social Security Number or Employer Identification Number. Keep accurate records of all payments made during the year.

2. Determine Who Needs Forms

Review your payment records to identify everyone who received $600 or more for services during 2021. Remember to check for the corporation exemption (except attorneys).

3. Complete the Forms

Fill out a separate Form 1099-NEC for each qualifying recipient. Enter the payer's information (your business), recipient's information from their W-9, and payment amounts in the appropriate boxes. Use Copy A for the IRS, Copy B for the recipient, and Copy C for your records.

4. File with the IRS

Submit Copy A along with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) if filing by paper. Electronic filers can use the IRS Filing Information Returns Electronically (FIRE) system or the newer Information Returns Intake System (IRIS). The deadline is January 31.

5. Provide Copies to Recipients

Furnish Copy B to each recipient by January 31. You can provide paper copies by mail or make fillable PDF versions available that recipients can download from IRS.gov.

Common Mistakes and How to Avoid Them

Missing or Incorrect TINs

The most frequent error is listing wrong Social Security Numbers or Employer Identification Numbers. This triggers IRS mismatch notices and potential penalties. Solution: Always use Form W-9 to collect information before making payments, and verify the TIN matches the recipient's legal name exactly as it appears on their tax returns.

Misclassifying Workers

Treating employees as independent contractors to avoid payroll taxes can result in severe penalties and back-tax liability. Solution: Use the IRS guidelines on worker classification. Generally, if you control when, where, and how work is done, the person is likely an employee requiring Form W-2, not Form 1099-NEC.

Reporting Personal Expenses

Filing 1099-NEC for payments not made in the course of your trade or business (like paying your neighbor to mow your home lawn) is incorrect. Solution: Only report payments made for business purposes.

Confusion Between 1099-NEC and 1099-MISC

The 2020 reintroduction of Form 1099-NEC created confusion about which form to use. Solution: Use Form 1099-NEC specifically for nonemployee compensation. Use Form 1099-MISC for other reportable payments like rent, royalties, and prizes not related to services.

Missing the Deadline

Form 1099-NEC's January 31 deadline is earlier than many other tax deadlines and catches filers off guard. Solution: Set calendar reminders for mid-January and prepare forms as soon as December payments are finalized.

Checking the VOID Box on Corrections

This causes the IRS to skip your form entirely. Solution: When correcting, check the "CORRECTED" box at the top of the form, never the VOID box.

What Happens After You File

For Payers

After filing, keep Copy C and all related documentation for at least three years (though four years is safer for employment tax purposes). The IRS may match the information you reported against the recipient's tax return. If discrepancies arise, the IRS may contact either you or the recipient for clarification.

For Recipients

If you received a 1099-NEC, you must report this income on your tax return, typically on Schedule C (Profit or Loss from Business) if you're a sole proprietor, or Schedule E for certain situations. The income is subject to both income tax and self-employment tax (Social Security and Medicare), which is typically around 15.3% of net earnings. You can deduct ordinary and necessary business expenses to reduce your taxable income.

Backup Withholding

If a recipient fails to provide a correct TIN or the IRS notifies you of a TIN problem, you must begin backup withholding federal income tax at the current rate from future payments. Report the withheld amount in Box 4 of Form 1099-NEC.

IRS Matching Program

The IRS uses an automated system to match information returns with individual tax returns. Significant mismatches may trigger automated notices or, in some cases, audits.

FAQs

Q1: I paid a contractor $550. Do I need to file Form 1099-NEC?

No. The reporting threshold is $600 or more per calendar year. However, if you later make additional payments to the same contractor bringing the total to $600 or more, you must file.

Q2: The contractor I hired operates as an LLC. Do I need to report this?

It depends on the LLC's tax classification. If it's taxed as a corporation (S-Corp or C-Corp), generally no—except for legal services. If it's a single-member LLC or partnership, yes. Check the Form W-9 they provided, which indicates their tax classification.

Q3: What if a contractor refuses to provide a W-9 or Social Security Number?

You're required to begin backup withholding at 24% on their payments. If they still refuse after you've made a reasonable effort to obtain the information, you may need to discontinue the business relationship. You should still file Form 1099-NEC using whatever information you have and report the backup withholding.

Q4: Can I issue Form 1099-NEC to someone who did both employee work and contract work?

Generally, no. If someone meets the definition of an employee for any work performed, all compensation should typically be reported on Form W-2. Mixing classifications for the same worker creates compliance risks. Consult a tax professional if you have this situation.

Q5: I forgot to file by January 31. What should I do?

File immediately. While you'll face penalties, they increase the longer you wait. The penalty is $50 per form if you file within 30 days, but jumps to $110 if you wait 31-60 days, and $280 if you file even later. Don't delay further.

Q6: The contractor's name on their W-9 doesn't match their legal name. What do I do?

Use the legal name and TIN exactly as they appear on the contractor's Social Security card or IRS correspondence. If there's a discrepancy, ask the contractor to provide a corrected W-9 with their legal name. Mismatches between names and TINs trigger IRS notices.

Q7: Do I need to file Form 1099-NEC for payments made via PayPal or credit card?

No. When you pay via credit card, debit card, or third-party payment networks, the payment processor is responsible for issuing Form 1099-K to the recipient. You don't need to also issue Form 1099-NEC for those same payments.

For more information and to download forms, visit IRS.gov/Form1099NEC.