If you've paid someone for work they did for your business but they're not your employee, you probably need to file Form 1099-NEC. This guide breaks down everything you need to know about this important tax form for the 2022 tax year, using information directly from the IRS.

What Form 1099-NEC Is For

Form 1099-NEC (Nonemployee Compensation) is the official IRS document that businesses use to report payments made to independent contractors, freelancers, and other non-employees. The form was reintroduced in 2020 specifically to report this type of compensation, which was previously reported on Form 1099-MISC.

You must file Form 1099-NEC when you've paid $600 or more during the calendar year to someone who performed services for your trade or business, but who isn't classified as your employee. This includes payments to independent contractors, consultants, attorneys (for their services), and directors' fees. The form serves two critical purposes: it informs the IRS about the income you paid out, and it provides recipients with documentation they need to report this income on their own tax returns.

The "NEC" stands for nonemployee compensation, and Box 1 of the form is where you report these payments. According to IRS instructions, this income is typically subject to self-employment tax for the recipient, meaning they'll need to report it on Schedule C (for sole proprietors) or other appropriate forms for their business structure.

You're generally not required to file Form 1099-NEC for payments to corporations (with important exceptions for attorney fees and medical/health care payments), payments for merchandise or personal purposes, or amounts paid to employees (those go on Form W-2 instead).

When You’d Use Form 1099-NEC

Regular Filing Timeline

For 2022 tax year returns, Form 1099-NEC had a strict deadline: January 31, 2023. Unlike many other 1099 forms that allow until late February or March to file, the 1099-NEC requires both filing with the IRS and furnishing copies to recipients by this earlier date. This accelerated deadline exists because the information helps the IRS match payments to income reported on individual tax returns during filing season.

Late Filing

If you missed the January 31 deadline, you should still file as soon as possible. The IRS imposes penalties for late filing that increase over time. According to IRS penalty guidelines, penalties range from $60 to $310 per form depending on how late you file, with potential maximum penalties reaching into the hundreds of thousands of dollars for large businesses filing many forms.

You can request an automatic 30-day extension using Form 8809, but you must submit it before the original deadline. For 2022 Forms 1099-NEC, note that automatic extensions are not available for the January 31 deadline—you can only request an extension under specific hardship circumstances.

Amended (Corrected) Returns

Mistakes happen. If you discover an error after filing—whether it's a wrong amount, incorrect taxpayer identification number (TIN), or missing information—you need to file a corrected Form 1099-NEC. To do this, obtain a new blank form, check the "CORRECTED" box at the top, and enter all the correct information (not just the changed items). Submit this corrected form to the IRS at the same address where you filed the original, and provide a copy to the recipient.

Important: Don't check the "VOID" box when filing corrections. The IRS notes in its form instructions that checking VOID signals scanning equipment to skip the form entirely, meaning your correction won't be processed. Use VOID only when electronically filing a replacement that completely cancels a previously filed form.

Key Rules or Details for 2022

Several critical rules governed Form 1099-NEC filing for tax year 2022:

• The $600 Threshold: You must report payments totaling $600 or more during the calendar year. This is cumulative—if you paid someone $50 per month for 12 months ($600 total), you must file.
• Trade or Business Requirement: Form 1099-NEC is required only for payments made in the course of your trade or business. Personal payments don't require reporting. As the IRS clarifies, you're engaged in a trade or business if you operate for gain or profit. Importantly, nonprofit organizations, qualified pension plans, and government agencies also must file.
• Independent Contractor Classification: The person you're paying must be a non-employee. This distinction is crucial—misclassifying employees as independent contractors can result in significant penalties. The IRS considers factors like behavioral control, financial control, and the relationship type when determining worker classification.
• Taxpayer Identification Number (TIN) Requirement: You must obtain the recipient's TIN (typically their Social Security Number or Employer Identification Number) before filing. Use Form W-9 to collect this information. If the recipient fails to provide their TIN, you're generally required to begin backup withholding at 24% and still file the Form 1099-NEC showing the withheld amount.
• Corporate Exemption—With Exceptions: Generally, you don't need to file Form 1099-NEC for payments to corporations. However, attorney fees are a major exception—these must be reported regardless of whether you paid an individual attorney or a law firm corporation. Medical and health care payments to corporations also require reporting, but on Form 1099-MISC, not 1099-NEC.
• Box 2 Direct Sales: If you paid someone $5,000 or more for direct sales of consumer products for resale, you check Box 2. This creates the January 31 filing obligation.

Step-by-Step (High Level)

Step 1: Gather Information

Collect all necessary details for each recipient: complete legal name, address, TIN, and total payments made during 2022. Review your accounting records, payment systems, and Form W-9s you collected throughout the year.

Step 2: Determine Filing Method

For tax year 2022, if you're filing 250 or more forms, you must file electronically. Below that threshold, you can choose paper or electronic filing. The IRS offers the FIRE system (Filing Information Returns Electronically) for free e-filing, or you can use approved tax software.

Step 3: Complete the Forms

Form 1099-NEC has multiple copies. Copy A goes to the IRS (printed in red ink for scanning). Copy 1 goes to your state tax department (if required). Copy B goes to the recipient for their tax records. Copy 2 also goes to the recipient for their state filing. Copy C stays in your files.

Enter the payer's information (your business), recipient's information, and the payment amount in Box 1. If you withheld any federal income tax (backup withholding), enter it in Box 4. Include state information in Boxes 5-7 if required by your state.

Step 4: File with the IRS

For paper filing, compile all Copy A forms and submit them with Form 1096 (the transmittal form that acts as a cover sheet) by January 31. Mail to the address specified in the IRS filing instructions based on your state. For electronic filing, submit through the FIRE system or approved software by the same deadline.

Step 5: Provide Copies to Recipients

Furnish Copy B (and Copy 2 for state filing) to each recipient by January 31. You can mail, hand-deliver, or furnish electronically if the recipient consents.

Step 6: Retain Your Records

Keep Copy C with your tax records. The IRS generally recommends retaining tax records for at least three years, though seven years is safer for business records.

Common Mistakes and How to Avoid Them

Mistake #1: Wrong or Missing TINs

This is the most frequent error. An incorrect TIN triggers CP2100 or CP2100A notices from the IRS and may require you to begin backup withholding. Prevention: Always collect Form W-9 before making payments. Use the IRS TIN Matching service to verify name/TIN combinations before filing. Format TINs correctly with hyphens: SSNs as XXX-XX-XXXX, EINs as XX-XXXXXXX.

Mistake #2: Using the Wrong Form

Many filers confuse Form 1099-NEC with 1099-MISC. Since 2020, nonemployee compensation goes on 1099-NEC, not 1099-MISC. Prevention: Remember that 1099-MISC is now primarily for rents, royalties, prizes, and other miscellaneous payments—not for service payments to independent contractors.

Mistake #3: Reporting Employee Payments

Payments to actual employees should never appear on Form 1099-NEC; they belong on Form W-2. Prevention: Correctly classify workers from the start. When in doubt, review IRS Publication 15-A or consult a tax professional. Remember: just calling someone an independent contractor doesn't make them one.

Mistake #4: Missing the January 31 Deadline

Many businesses accustomed to later deadlines for other forms miss this one. Prevention: Mark your calendar prominently. Consider filing early in January to build in a buffer for errors or delays.

Mistake #5: Incorrect Dollar Amounts

Transposing numbers or reporting gross amounts when net was intended creates mismatches. Prevention: Report the actual gross amount paid before any deductions. Double-check figures against your accounting system. Have a second person review before filing.

Mistake #6: Not Reporting Backup Withholding

If you withheld 24% backup withholding due to a missing TIN, you must report it in Box 4. Prevention: Implement a system to track when backup withholding applies and ensure it's reported on both Form 1099-NEC and remitted to the IRS using Form 945.

Mistake #7: Checking VOID Instead of CORRECTED

As mentioned earlier, checking VOID when you mean CORRECTED causes the IRS scanning system to ignore your correction. Prevention: Understand that VOID completely cancels a form (used mainly in electronic filing), while CORRECTED updates information.

What Happens After You File

Once you submit your 2022 Forms 1099-NEC, several things occur:

IRS Matching Program

The IRS enters the information into its computer systems and matches it against income reported on recipients' tax returns. This matching program helps identify taxpayers who underreport their income. If someone fails to report income you documented on a 1099-NEC, they may receive a CP2000 notice (Underreporter Inquiry) from the IRS proposing additional tax, interest, and penalties.

Recipient Tax Obligations

Recipients use their Copy B to prepare their tax returns. Self-employed individuals report this income on Schedule C (or Schedule F for farming), which feeds into their Form 1040. They'll also calculate self-employment tax on Schedule SE, which covers their Social Security and Medicare obligations—roughly 15.3% on net earnings.

State Tax Reporting

If your state has income tax, it also receives copies of Form 1099-NEC and performs similar matching. Recipients must report this income on state returns as well.

Potential Notices

If the IRS identifies issues with your filing, you may receive various notices:

• CP2100/CP2100A: Name/TIN mismatch notifications requiring you to solicit corrected information and potentially begin backup withholding
• Penalty notices: For late filing, missing forms, or incorrect information
• Inquiry letters: Requesting additional information or clarification

Audit Implications

Forms 1099-NEC become part of your tax record and may be reviewed during an audit. They support business deductions you claimed for contractor payments. Ensure your other records (contracts, invoices, receipts) align with the 1099s you filed.

Correcting Post-Filing Errors

If you or the recipient discover an error after filing, act promptly. File a corrected Form 1099-NEC as described earlier. If the error benefits the recipient (you over-reported income), they may file an amended tax return (Form 1040-X) once you provide the corrected form.

FAQs

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

A: Form 1099-NEC, reintroduced in 2020, is specifically for nonemployee compensation (Box 1) and has a January 31 deadline. Form 1099-MISC reports other types of payments like rents, royalties, prizes, and certain other income, with later filing deadlines (February 28 for paper, March 31 electronic). Prior to 2020, nonemployee compensation was reported in Box 7 of Form 1099-MISC.

Q: Do I need to file a 1099-NEC if I paid someone through PayPal, Venmo, or another payment app?

A: It depends. If you paid for business services and the total was $600 or more, yes, you still need to file Form 1099-NEC. However, if the payment was made through a payment settlement entity (like PayPal for goods and services), they may issue a Form 1099-K to the recipient. According to the IRS, payments reported on Form 1099-K don't need to be reported again on Form 1099-NEC. For personal payment app transactions (friends/family), no reporting is required.

Q: What if I can't get a contractor's Social Security Number or TIN?

A: You should make reasonable efforts to obtain it, documenting your attempts. If the contractor refuses or fails to provide it, you must begin backup withholding at 24% on payments and still file Form 1099-NEC, leaving the TIN field blank (though this triggers penalties for the contractor and may result in IRS notices to you). The IRS backup withholding rules require you to start withholding immediately if the TIN is refused or obviously incorrect.

Q: I'm a sole proprietor who paid another sole proprietor. Do I still file a 1099-NEC?

A: Yes, if you paid $600 or more for services in the course of your trade or business. The IRS requires reporting regardless of your business structure or the recipient's structure (with the corporate exemption noted earlier). Even part-time businesses or side gigs must file if they meet the threshold.

Q: What happens if I file late?

A: The IRS assesses penalties based on how late you file. According to IRS penalty schedules, if you file within 30 days of the deadline, the penalty is $60 per form (for 2022). Between 31 days and August 1, it increases to $120 per form. After August 1 or not filing at all, it jumps to $310 per form. These amounts are adjusted annually for inflation. There are maximum penalties based on business size, with higher caps for intentional disregard.

Q: Can I e-file just a few forms, or do I need special software?

A: Yes, you can e-file any number of forms using the IRS's free IRIS system (Information Reporting Intake System). It allows small businesses to electronically file information returns without purchasing software. For those filing 250 or more forms, electronic filing is mandatory, but you can choose IRIS, approved tax software, or the FIRE system.

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

A: It depends on how the LLC is taxed. If the LLC is taxed as a sole proprietorship or partnership (the default for single-member and multi-member LLCs), yes, you must file Form 1099-NEC if you paid $600 or more for services. If the LLC elected to be taxed as a corporation (S-corp or C-corp), you generally don't need to file—except for attorney fees, which must always be reported regardless of business structure.

Authoritative Sources

• IRS Form 1099-NEC
• Instructions for Forms 1099-MISC and 1099-NEC
• 2022 General Instructions for Certain Information Returns
• IRS Information Return Penalties
• IRS Backup Withholding Guidance

This guide is for informational purposes and reflects rules for tax year 2022. Tax laws change regularly, so always consult the current year's IRS instructions or a qualified tax professional for specific situations.