What Form 1099-NEC Is For

Form 1099-NEC is the tax form businesses use to report payments they've made to independent contractors, freelancers, and other self-employed workers. Think of it as the independent contractor's equivalent of the W-2 form that employees receive.

If you run a business and paid someone $600 or more during the year for services—and they weren't your employee—you'll likely need to send them a 1099-NEC. This includes payments to freelance writers, graphic designers, consultants, lawyers (for their services), plumbers, electricians, and countless other independent professionals.

The form tracks nonemployee compensation, which is exactly what it sounds like: money paid to people who work for you but aren't on your payroll. Unlike employees who receive regular paychecks with taxes automatically withheld, independent contractors receive the full payment amount and are responsible for paying their own taxes. The 1099-NEC ensures the IRS knows about these payments so they can verify that contractors are properly reporting their income. IRS Form 1099-NEC Information

It's worth noting that Form 1099-NEC was reintroduced in 2020 after being retired for decades. Previously, nonemployee compensation was reported on Form 1099-MISC, but the IRS brought back the separate 1099-NEC form to streamline reporting and clarify the January 31 filing deadline that applies specifically to nonemployee compensation.

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

Regular Filing Timeline

For the 2023 tax year, you must file Form 1099-NEC by January 31, 2024—both to the IRS and to the recipient (contractor). This is different from many other 1099 forms that have later deadlines. Missing this deadline can trigger penalties, so mark your calendar early.

You need to file if you meet all these conditions:

• You made the payment in the course of your trade or business (not personal payments)
• You paid at least $600 to the contractor during 2023
• The payment was for services performed by someone who is not your employee
• The recipient is not a corporation (with some exceptions, like payments to attorneys)

Late Filings

Life happens, and sometimes you miss the deadline. If you realize you should have filed a 1099-NEC but didn't, file it as soon as possible. The IRS assesses late-filing penalties based on how late you are, but filing late is always better than not filing at all. IRS Information Return Penalties

For 2023 returns, penalties work like this:

• 1-30 days late: $50 per form
• 31 days late through August 1: $110 per form
• After August 1 or not filed: $290 per form
• Intentional disregard: $580 per form with no maximum

Amended/Corrected Returns

If you discover an error on a 1099-NEC you've already filed—wrong amount, incorrect Social Security number, misspelled name—you need to file a corrected form. Simply check the "CORRECTED" box at the top of a new Form 1099-NEC, enter the correct information, and file it with the IRS. Also send a copy to the recipient with an explanation of the correction. Do not check the "VOID" box on corrections; that's only for returns submitted in error that should be completely ignored. IRS Instructions for Forms 1099-NEC

Key Rules for 2023

The $600 Threshold

The most important number to remember is $600. If you paid a contractor $600 or more during the calendar year for services, you generally must issue a Form 1099-NEC. This applies to the total payments made throughout the year, not per transaction.

Services Only, Not Goods

Form 1099-NEC is for reporting payments for services, not for purchasing merchandise or goods. If you buy $5,000 worth of office supplies from a vendor, you don't issue a 1099-NEC. But if you pay someone $600 to assemble and install those supplies, you do.

Who Gets a 1099-NEC

You must issue Form 1099-NEC to:

• Independent contractors and freelancers
• Unincorporated service providers (sole proprietors, single-member LLCs)
• Attorneys and law firms (even if incorporated)
• Directors' fees paid to board members
• Medical and healthcare providers

Who Doesn't Get a 1099-NEC

You generally don't need to issue a 1099-NEC to:

• Corporations (except attorneys/legal services)
• Payments under $600
• Employees (they get W-2s instead)
• Personal payments not related to your business
• Payments made via credit card or PayPal (reported on Form 1099-K instead by the payment processor)

Backup Withholding

If a contractor doesn't provide you with their Taxpayer Identification Number (TIN) when requested, you may be required to withhold 24% of their payments as backup withholding and report it on the 1099-NEC. This protects you from IRS penalties. IRS Backup Withholding Rules

Step-by-Step Filing Guide (High Level)

Step 1: Collect Information Throughout the Year

Don't wait until January to start gathering paperwork. At the beginning of any relationship with a contractor, have them complete Form W-9. This form provides their legal name, business name (if different), address, and TIN (Social Security number or Employer Identification Number). Keep these on file.

Step 2: Track Your Payments

Maintain detailed records of all contractor payments throughout 2023. Your accounting software should categorize these separately from employee wages. Make sure you're tracking the total paid to each contractor so you know who reaches the $600 threshold.

Step 3: Gather Your Forms

By early January 2024, you'll need:

• Completed Form W-9 from each contractor
• Total annual payment amounts for each contractor
• Your business's Employer Identification Number (EIN)
• Form 1099-NEC (one for each contractor)
• Form 1096 (summary transmittal form if filing on paper)

Step 4: Complete the Form

Fill out a separate Form 1099-NEC for each contractor. You'll enter:

• Your business information (name, address, EIN) in the payer section
• Contractor's information (name, address, TIN) in the recipient section
• Total payment amount in Box 1 (Nonemployee Compensation)
• Any federal income tax withheld in Box 4 (if backup withholding applied)
• State tax information if applicable (Boxes 5-7)

Step 5: File With the IRS

You have two options:

• Electronic filing (recommended): If you file 10 or more information returns, electronic filing is mandatory. Use the IRS FIRE system or the free IRIS portal. E-filers must submit by January 31, 2024.
• Paper filing: If filing fewer than 10 forms, you can mail them. Send Copy A of each 1099-NEC along with Form 1096 to the IRS address for your state. Must be postmarked by January 31, 2024. IRS E-filing Information

Step 6: Provide Copies to Contractors

Send or electronically deliver Copy B to each contractor by January 31, 2024. Contractors need this to prepare their tax returns. You can mail it, hand-deliver it, or send it electronically if the recipient agrees.

Step 7: Keep Your Records

Retain Copy C for your business records. The IRS recommends keeping these for at least four years, along with your W-9 forms and payment documentation.

Common Mistakes and How to Avoid Them

Mistake #1: Misclassifying Workers

The Problem: The most costly mistake is treating an employee as an independent contractor or vice versa. This can trigger penalties, back taxes, and even legal issues.
How to Avoid It: Understand the difference. Independent contractors control how, when, and where they work. You control only the result. Employees work under your direction, follow your schedule, and use your equipment. If you're unsure, review the IRS worker classification guidelines or file Form SS-8 to request an official determination. IRS Worker Classification

Mistake #2: Wrong or Missing Taxpayer Identification Numbers

The Problem: Entering an incorrect TIN or forgetting to collect it leads to IRS "CP2100" notices and potential backup withholding requirements and penalties.
How to Avoid It: Always collect Form W-9 before making the first payment. Double-check the TIN against the name. Consider using the IRS TIN Matching service to verify information before filing.

Mistake #3: Failing to Report Payments Made by Credit Card

The Problem: Some businesses issue 1099-NECs for payments made via credit card or PayPal, creating duplicate reporting since payment processors issue Form 1099-K.
How to Avoid It: Only report payments you made directly—by check, cash, or direct bank transfer. If you paid via credit card or third-party payment network, the payment processor handles the reporting on Form 1099-K.

Mistake #4: Missing the January 31 Deadline

The Problem: Unlike other 1099 forms with February or March deadlines, Form 1099-NEC is due January 31 to both the IRS and recipients. Many businesses miss this early deadline.
How to Avoid It: Set calendar reminders for mid-January. Don't wait until late January to start the process. If you need more time, file Form 8809 by January 31 to request a 30-day extension, but note that extensions for Form 1099-NEC are only granted in limited circumstances.

Mistake #5: Incorrect Box Usage

The Problem: Putting nonemployee compensation in the wrong box or on the wrong form (like Form 1099-MISC instead of 1099-NEC).
How to Avoid It: Use Form 1099-NEC Box 1 for all payments to independent contractors for services. Form 1099-MISC serves different purposes (rents, royalties, prizes, etc.). When in doubt, consult the IRS instructions. IRS Form 1099-NEC Instructions

Mistake #6: Not Reporting Payments to Attorneys

The Problem: Many businesses don't realize that payments to law firms and attorneys must be reported even if the law firm is a corporation.
How to Avoid It: Remember that the usual corporate exemption doesn't apply to legal services. Always issue Form 1099-NEC to attorneys and law firms when you've paid $600 or more for legal services.

Mistake #7: Forgetting State Copies

The Problem: Focusing only on federal requirements and forgetting that many states require their own copies of 1099 forms.
How to Avoid It: Check your state's requirements. Many states want a copy of any 1099-NEC issued to residents of that state. Some states have their own filing systems.

What Happens After You File

For You (The Business)

Once you've filed, keep your records organized in case the IRS has questions. Generally, you won't hear anything unless there's a problem—no news is good news.

If there's an issue: The IRS may send you a CP2100 or CP2100A notice if names and TINs don't match their records. You'll need to solicit corrected W-9 forms from the affected contractors and may need to implement backup withholding for future payments.

Deducting the expense: The payments you reported on Form 1099-NEC are generally deductible as business expenses on your tax return. The 1099-NEC doesn't affect your deduction—it just reports it to the IRS.

For the Contractor (Recipient)

Contractors use the 1099-NEC to report their income when filing their tax returns. The income from Box 1 gets reported on Schedule C (Form 1040) if they're a sole proprietor, or on the appropriate business return if they're a partnership or corporation.

Self-employment tax: Unlike employees, independent contractors pay both the employee and employer portions of Social Security and Medicare taxes (15.3% self-employment tax). They may also need to make quarterly estimated tax payments throughout the year.

If they didn't receive a 1099-NEC: Contractors are required to report all income, whether or not they receive a 1099-NEC. The absence of the form doesn't mean the income isn't taxable.

IRS Matching Process

The IRS uses sophisticated computer systems to match the 1099-NEC forms you file against the income reported on contractors' tax returns. Discrepancies trigger automated notices to either you (if information is missing or incorrect) or the contractor (if they underreported income).

This matching process is why accuracy matters so much. Even small errors—like transposing digits in a TIN—can trigger unnecessary correspondence and potential penalties.

FAQs

Q1: Do I need to issue a 1099-NEC if I paid someone $599?

No. The threshold is $600 or more. If you paid someone $599.99 or less during the entire calendar year, you don't need to issue a 1099-NEC. However, you might want to keep track of contractors who received large amounts close to the threshold in case there were additional payments you forgot about.

Q2: I paid a contractor through Venmo. Do I still need to file a 1099-NEC?

It depends. If you sent the payment as "friends and family," yes—you still need to file a 1099-NEC because this was a direct payment. However, if you paid through Venmo for goods and services (business transaction), the payment processor should issue Form 1099-K to the contractor, and you shouldn't also issue a 1099-NEC. The key is avoiding duplicate reporting.

Q3: What if a contractor refuses to provide a W-9 or TIN?

If a contractor won't provide their TIN, you're required to begin backup withholding at 24% on all future payments and report it on Form 1099-NEC. You should still file the form with whatever information you have (name and address), entering "Applied For" in the TIN field if they've genuinely applied for one. This protects you from penalties, though you may still receive IRS notices.

Q4: I forgot to send a 1099-NEC to a contractor. What should I do?

File it immediately, even if you're past the deadline. Send copies to both the IRS and the contractor. The penalty increases the longer you wait. Include a letter explaining the delay if you have reasonable cause (serious illness, natural disaster, etc.). You might qualify for penalty relief.

Q5: Can I e-file just one or two 1099-NEC forms, or do I have to file them all electronically?

You can e-file any number of forms. While electronic filing is only mandatory if you file 10 or more information returns (of all types combined), the IRS encourages e-filing even if you're filing just one form. The free IRIS portal makes it easy to file even a single 1099-NEC electronically.

Q6: Do I need to send a 1099-NEC to my landlord for office rent?

Only if your landlord is an individual or a non-corporate entity. If you pay rent of $600 or more to an individual landlord, you should issue Form 1099-MISC (not 1099-NEC) Box 1 for rents. If you pay a property management company or corporate landlord, you generally don't need to file any form unless you're a real estate agent managing properties.

Q7: What's the difference between Form 1099-NEC and Form 1099-MISC?

Form 1099-NEC is specifically for nonemployee compensation (payments to independent contractors for services). Form 1099-MISC covers various other payment types like rents, royalties, prizes, medical payments, and legal settlements. The separation helps clarify reporting requirements and deadlines—1099-NEC always has a January 31 deadline, while most 1099-MISC boxes have later deadlines (February 28 for paper, March 31 for e-file).

Resources

• IRS Form 1099-NEC Official Page
• Instructions for Forms 1099-MISC and 1099-NEC
• General Instructions for Certain Information Returns
• IRS Information Return Penalties

This guide provides general information about Form 1099-NEC for tax year 2023 based on authoritative IRS sources. Tax situations vary, and this information should not be considered professional tax advice. Consult with a qualified tax professional for guidance specific to your situation.