Understanding Form 1099-NEC doesn't have to be complicated. This guide breaks down everything you need to know about reporting nonemployee compensation for the 2024 tax year in plain language, using information from official IRS sources.

What Form 1099-NEC Is For

Form 1099-NEC (Nonemployee Compensation) is the tax form businesses use to report payments of $600 or more made to independent contractors, freelancers, and other non-employees during a tax year. If you're a business owner who paid someone for services—but they weren't your employee—you likely need to file this form.

The form was reintroduced by the IRS in 2020 to specifically report nonemployee compensation, separating it from the old Form 1099-MISC. Think of it as the official record that tells both the contractor and the IRS: "This person received this much money for work performed." IRS.gov

Common situations requiring Form 1099-NEC include payments to:

• Freelance designers, writers, or consultants
• Independent contractors performing services
• Attorneys for legal services (even if they're a corporation)
• Directors receiving board fees
• Lottery ticket sales agents receiving commissions

The $600 threshold is cumulative for the entire year. If you paid someone $300 in March and $400 in September, that's $700 total—which means you must file. IRS Instructions

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

Filing Deadlines

For the 2024 tax year, Form 1099-NEC has a strict January 31, 2025 deadline. This applies whether you file on paper or electronically, and it's the same date by which you must provide copies to your contractors. Unlike many other 1099 forms that have different deadlines for paper versus electronic filing, Form 1099-NEC treats both the same—everything is due January 31. IRS.gov

If January 31 falls on a weekend or holiday, the deadline moves to the next business day.

Late Filing

If you miss the deadline, you can still file—but penalties apply based on how late you are:

• 1-30 days late: $60 per form
• 31 days to August 1: $130 per form
• After August 1 or not filed: $310 per form
• Intentional disregard: $660 per form (or 10% of the income reported, whichever is greater) with no maximum penalty cap

These penalties double if you fail to provide copies to recipients as well. IRS Penalty Information

Corrected/Amended Forms

Discovered an error after filing? You'll need to file a corrected Form 1099-NEC—not an amended one. The process is straightforward:

• Use a new Form 1099-NEC with all the correct information
• Check the "CORRECTED" box at the top of the form
• Submit it to the IRS using the same method you used originally (paper or electronic)
• Send a corrected copy to the recipient
• If applicable, submit corrections to state tax agencies

Important: Never check both the "CORRECTED" and "VOID" boxes. If you check "VOID," the IRS scanning equipment will ignore the entire form. There's no hard deadline for corrections, but the IRS prefers corrections within three years of the original filing. IRS Instructions

Key Rules for 2024

• The $600 Threshold: You must file if you paid $600 or more during the year for services performed by a non-employee in the course of your trade or business. Personal payments don't count—only business-related payments.
• Who Gets a 1099-NEC:
  Independent contractors and freelancers; self-employed individuals; attorneys (even corporations—this is an exception to the corporate exemption); anyone performing services who isn't your employee.
• Who Doesn't Get One:
  Regular employees (they get Form W-2); corporations (with the exception of attorneys); payments made with credit cards or through payment platforms like PayPal (reported on Form 1099-K instead); tax-exempt organizations; payments under $600.
• Electronic Filing Requirement: A significant 2024 rule change requires electronic filing if you have 10 or more information returns (counting all 1099 forms, not just 1099-NEC). This threshold dropped dramatically from the previous 250-return requirement. Most businesses will now need to e-file. IRS.gov
• Taxpayer Identification Number (TIN) Required: You must collect each contractor's TIN—typically their Social Security Number or Employer Identification Number—using Form W-9. If they don't provide it, you're required to withhold 24% backup withholding and may face penalties.

Step-by-Step (High Level)

Step 1: Collect Form W-9 Before Payment

Before paying any contractor, have them complete Form W-9. This provides their legal name, business name (if applicable), TIN, and certification that their information is correct.

Step 2: Track Payments Throughout the Year

Keep accurate records of all payments to non-employees. Use accounting software or spreadsheets to monitor when payments cross the $600 threshold.

Step 3: Obtain Official Forms

Download Form 1099-NEC from IRS.gov or order official scannable forms if filing by paper. You can also use IRS-approved software for electronic filing through the FIRE system or the newer IRIS portal.

Step 4: Complete the Form

• Enter your business information (name, address, TIN) as the payer
• Enter contractor information from their W-9
• Report total compensation in Box 1
• Report any federal income tax withheld in Box 4 (typically only applies if backup withholding)
• Complete state information if applicable (Boxes 5-7)

Step 5: File by January 31

Submit Copy A to the IRS electronically (if 10+ forms) or by mail to the appropriate IRS processing center. Provide Copy B to the contractor. Keep Copy C for your records.

Step 6: Retain Records

Keep copies of all Forms 1099-NEC and supporting documentation for at least four years.

Common Mistakes and How to Avoid Them

Mistake #1: Mismatched Name/TIN Information

The most common error occurs when the name or TIN on Form 1099-NEC doesn't match IRS records. This triggers notices and potential penalties.
Solution: Use the IRS TIN Matching Program before filing to verify information matches. Always get a completed W-9 before making payments.

Mistake #2: Missing the January 31 Deadline

Unlike Form 1099-MISC (due February 28 for paper, March 31 for electronic), Form 1099-NEC has one hard deadline: January 31.
Solution: Mark your calendar and start preparing in early January. Consider using electronic filing software with deadline reminders.

Mistake #3: Reporting on the Wrong Form

Confusing Form 1099-MISC with Form 1099-NEC is surprisingly common. Remember: nonemployee compensation for services goes on 1099-NEC.
Solution: Ask yourself: "Did they provide a service as a non-employee?" If yes, use Form 1099-NEC. Rent, royalties, prizes, and other income go on Form 1099-MISC.

Mistake #4: Failing to Report Attorney Payments

Even if an attorney operates as a corporation, you still must report their payments—this is an exception to the general rule exempting corporation payments.
Solution: Issue Form 1099-NEC to all attorneys and law firms, regardless of business structure.

Mistake #5: Including Wrong Payment Types

Not all payments to contractors belong on Form 1099-NEC. Reimbursements for expenses, payments for merchandise, and credit card payments shouldn't be included.
Solution: Only report actual compensation for services. Expense reimbursements under an accountable plan aren't reportable.

Mistake #6: Not Filing Because of State Sales Tax

If you pay state sales tax separately to the contractor, don't deduct it from the reportable amount—report the total payment including sales tax if it was paid to the contractor.
Solution: Report the gross amount paid to the contractor; they'll handle the tax reporting.

What Happens After You File

For the IRS: The IRS receives your Form 1099-NEC and matches it against the contractor's tax return (typically Schedule C on Form 1040). If the contractor doesn't report income that matches your 1099-NEC, the IRS may send them a notice requesting explanation or additional tax payment.

For the Contractor: The contractor receives Copy B of your Form 1099-NEC by January 31. They use this information to complete their tax return, typically reporting the income on Schedule C (Profit or Loss from Business) and paying self-employment tax (Social Security and Medicare taxes for self-employed individuals) on Schedule SE.

For Your Business: You'll deduct the contractor payments as ordinary business expenses on your business tax return (Schedule C for sole proprietors, Form 1120 for corporations, Form 1065 for partnerships).

Potential IRS Contact: You might receive notices if:

• The TIN doesn't match IRS records ("B Notice")
• You failed to file when required
• There are discrepancies between your forms and contractor-reported income

Respond promptly to any IRS notices. Ignoring them can lead to increased penalties.

FAQs

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

It depends on the LLC's tax classification. 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 (unless it's an attorney). Always check the W-9—the contractor indicates their tax classification there.

What if a contractor refuses to provide their Social Security Number or TIN?

You're required to request it at least twice. If they still refuse, you must implement backup withholding at 24% and file Form 945 (Annual Return of Withheld Federal Income Tax). You should still file Form 1099-NEC, leaving the TIN field blank, but this will trigger an IRS penalty notice.

Can I e-file Form 1099-NEC for free?

Yes. The IRS offers the IRIS (Information Reporting Intake System) portal for free electronic filing. However, it requires separate filing for each form. Many businesses prefer third-party software that allows bulk uploads, though these services typically charge fees.

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

Form 1099-NEC is specifically for nonemployee compensation (payments for services). Form 1099-MISC reports other types of payments like rent, royalties, prizes, medical payments, and attorney gross proceeds. If you're paying someone for work they performed as a contractor, use 1099-NEC.

I paid someone $595 total for the year. Do I still need to file?

No. The $600 threshold is firm. Payments totaling $599.99 or less don't require Form 1099-NEC. However, it's good practice to keep records in case the IRS questions the payments during an audit.

What happens if I file a 1099-NEC but the person was actually an employee?

This is a serious misclassification issue. The IRS may reclassify the worker as an employee, requiring you to pay back employment taxes (Social Security, Medicare, and unemployment taxes) plus penalties and interest. If you're unsure whether someone is an employee or contractor, review IRS Publication 15-A or consult a tax professional.

Can I correct a Form 1099-NEC from a previous year?

Yes. There's no statute of limitations on filing corrections, though the IRS prefers corrections within three years. File a corrected form as soon as you discover the error, checking the "CORRECTED" box and entering all information accurately. The contractor may need to amend their personal tax return if the correction affects their income.

Additional Resources:

• Official IRS Form 1099-NEC
• Instructions for Forms 1099-MISC and 1099-NEC
• General Instructions for Certain Information Returns
• IRIS Electronic Filing Portal

This guide provides general information and shouldn't be considered legal or tax advice. For specific situations, consult a qualified tax professional or the IRS directly.