Form 1099-NEC Nonemployee Compensation 2022: A Complete Guide
What the Form Is For
Form 1099-NEC (Nonemployee Compensation) is the IRS form businesses use to report payments made to independent contractors, freelancers, and other non-employees. The IRS reintroduced this dedicated form in 2020 after years of reporting such payments on Form 1099-MISC.
If you hired someone to provide services for your business—whether that's a graphic designer, consultant, plumber, or attorney—and paid them $600 or more during 2022, you generally need to file Form 1099-NEC. The form captures the total compensation paid in Box 1, along with any federal income tax withheld through backup withholding in Box 4.
The key distinction: this form is for people who performed services but weren't your employees. Employees receive Form W-2 instead. Independent contractors are self-employed and responsible for their own taxes, including self-employment tax at 15.3%.
Importantly, you only file Form 1099-NEC for payments made “in the course of your trade or business”—personal payments don't count. Nonprofit organizations, trusts of qualified pension plans, and government agencies must also file these forms when applicable. IRS.gov
When You’d Use (Late/Amended)
Original Filing
For 2022 payments, Form 1099-NEC had to be filed with the IRS and furnished to recipients by January 31, 2023. This accelerated deadline (earlier than most other 1099 forms) helps the IRS match reported income with tax returns more efficiently. IRS.gov
Late Filing
If you missed the deadline, file as soon as possible. The IRS imposes penalties based on how late you file, but filing late is always better than not filing at all. You can request an automatic 30-day extension by submitting Form 8809 before the original due date, though no automatic extension is available specifically for Form 1099-NEC for employment tax purposes. IRS.gov
Amended/Corrected Returns
Discovered an error after filing? Don't check the “VOID” box—that tells IRS scanning equipment to ignore the form entirely, and your correction won't be processed. Instead, prepare a new Form 1099-NEC with the corrected information and mark the “CORRECTED” checkbox at the top. File it with a new Form 1096 transmittal (if filing on paper) or through the IRS FIRE System (if filing electronically). You must also furnish a corrected statement to the recipient. Common corrections include wrong amounts, incorrect recipient information, or mismatched taxpayer identification numbers (TINs). IRS.gov
Key Rules for 2022
- The $600 Threshold: You must file Form 1099-NEC if you paid $600 or more to a non-employee during 2022. Even if you paid someone $599, no form is required (though you should keep records). However, if you withheld any federal income tax under backup withholding rules, you must file regardless of the payment amount. IRS.gov
- Exceptions—When NOT to File:
- Payments to C or S corporations (with exceptions for attorney fees and medical/healthcare payments)
- Payments for merchandise, freight, storage, or similar items
- Payments to employees (use Form W-2)
- Payments made with credit cards or through third-party networks (reported on Form 1099-K by the payment processor)
- Personal, non-business payments
- Payments to tax-exempt organizations IRS.gov
- Attorney Payments: Special rules apply. You must report $600+ in attorney fees to any attorney or law firm, even if they're a corporation. This exception to the “don't report to corporations” rule ensures comprehensive tracking of legal service payments. IRS.gov
- Backup Withholding: If a contractor doesn't provide a valid TIN, you must withhold 24% of payments as backup withholding and report it in Box 4. The withheld amount goes to the IRS, and the contractor receives credit when filing their tax return. IRS.gov
- Multiple Forms: Use a separate Form 1091-NEC for each person or business you paid. If you paid 15 different contractors, you'll prepare 15 different forms.
Step-by-Step (High Level)
Step 1: Collect Information Before Paying
Before making your first payment to any contractor, have them complete Form W-9 (Request for Taxpayer Identification Number and Certification). This form provides their legal name, business structure, correct TIN (Social Security Number or Employer Identification Number), and certification that they're not subject to backup withholding. Keep these W-9 forms in your files—you'll need the information when preparing 1099-NEC forms. IRS.gov
Step 2: Track Payments Throughout the Year
Maintain accurate records of all payments to non-employees. Include dates, amounts, and services provided. Good bookkeeping now saves headaches later. At year-end, total up payments to each contractor.
Step 3: Determine Who Needs a Form
Review your payment records and identify everyone who received $600 or more (or anyone subject to backup withholding). Double-check whether they fall under any exceptions (corporations, employees, etc.).
Step 4: Complete the Form
Obtain official IRS forms (available at IRS.gov) or use IRS-approved software. Fill in:
- Your business name, address, and EIN (payer information)
- Recipient's name, address, and TIN from their Form W-9
- Box 1: Total nonemployee compensation paid
- Box 2: If applicable, mark direct sales of $5,000+ of consumer products for resale
- Box 4: Any federal income tax withheld (backup withholding)
- State information if required by your state IRS.gov
Step 5: File with the IRS and Furnish to Recipients
Paper filers: Mail Copy A of all Forms 1099-NEC with Form 1096 (transmittal) to the appropriate IRS processing center by January 31. Electronic filers: Submit through the IRS FIRE System by January 31. You must also furnish Copy B to each recipient by January 31. If you file 10 or more forms, electronic filing is mandatory. IRS.gov
Common Mistakes and How to Avoid Them
Mistake #1: Using the Wrong Box
Only report nonemployee compensation in Box 1. Don't confuse this with other income types that belong on Form 1099-MISC (rents, royalties, other income). Misclassification causes matching problems when the IRS cross-references your form with the recipient's tax return. IRS.gov
Mistake #2: Incorrect or Missing TIN
The most common error—and a costly one. Always use Form W-9 to collect TINs before making payments. Enter the number exactly as provided, using proper formatting (XXX-XX-XXXX for SSNs, XX-XXXXXXX for EINs). Mismatched TINs trigger IRS notices and potential penalties. IRS.gov
Mistake #3: Checking “VOID” on Corrections
When correcting a previously filed form, never check the VOID box. IRS scanners will skip over it entirely. Instead, check the “CORRECTED” box and submit the corrected information. IRS.gov
Mistake #4: Filing for Exempt Recipients
Don't file for payments to most corporations (except attorney fees and medical services). Also exempt: payments to tax-exempt organizations, government entities, and payments made via credit card or third-party payment networks. IRS.gov
Mistake #5: Missing the January 31 Deadline
Form 1099-NEC has an earlier deadline than most information returns. Mark your calendar for January 31—not February 28 or March 31. Late filing triggers penalties that escalate based on how late you file. IRS.gov
Mistake #6: Not Keeping Records
Maintain copies of filed returns or the ability to reconstruct the data for at least three years (four years if backup withholding was involved). The IRS may request documentation during audits. IRS.gov
Mistake #7: Mixing Employee and Contractor Payments
Employee wages belong on Form W-2, not Form 1099-NEC. Misclassifying employees as contractors carries serious consequences, including back taxes, penalties, and potential employment law violations.
What Happens After You File
IRS Processing
The IRS receives your Forms 1099-NEC and enters the data into its system. The agency then cross-matches this information with income reported on recipients' tax returns (Schedule C, Form 1040, etc.). This matching program helps identify unreported income. IRS.gov
Recipient Filing
Each person who received a Form 1099-NEC from you must report that income on their tax return. Self-employed individuals typically report it on Schedule C (Profit or Loss from Business) and pay both income tax and self-employment tax on the net profit.
Notices and Corrections
If the IRS discovers mismatches—particularly incorrect TINs—you'll receive a CP2100 or CP2100A notice listing the problematic forms. You must then solicit correct TINs from recipients using the “B” notice procedure and implement backup withholding if they don't provide a valid TIN within a specified timeframe. You may also face penalties for each incorrect form. IRS.gov
Record Retention
Keep your filed forms and supporting documentation for at least three years from the due date. If backup withholding was involved, extend this to four years. These records protect you during IRS examinations and help resolve any discrepancies. IRS.gov
Penalties Assessment
If you filed late or incorrectly without reasonable cause, expect penalty assessments. The IRS typically sends a notice showing the penalty amount and payment instructions. You can appeal if you have reasonable cause (such as natural disaster, serious illness, or unavoidable absence). IRS.gov
State Requirements
Many states have their own reporting requirements. Some participate in the Combined Federal/State Filing Program, allowing you to satisfy both federal and state obligations with one submission. Check your state's requirements separately. IRS.gov
FAQs
Q1: What's the penalty for not filing Form 1099-NEC on time?
Penalties escalate based on how late you file: $50 per form if corrected within 30 days (capped at $588,500 annually, or $206,000 for small businesses); $110 per form if corrected between 30 days and August 1 (capped at $1,766,000, or $588,500 for small businesses); and $290 per form after August 1 or never filed (capped at $3,532,500, or $1,177,500 for small businesses). Intentional disregard carries a minimum $580 penalty per form with no maximum cap. IRS.gov
Q2: Do I need to file Form 1099-NEC for payments made via credit card or PayPal?
No. When you pay contractors through credit cards, debit cards, or third-party payment networks, the payment processor files Form 1099-K to report those transactions. You're not required to issue Form 1099-NEC for these payments—doing so would create duplicate reporting. IRS.gov
Q3: What's the difference between Form 1099-NEC and Form 1099-MISC?
Form 1099-NEC specifically reports nonemployee compensation (payments for services), while Form 1099-MISC covers other payment types including rents, royalties, prizes, medical payments, and attorney gross proceeds. The IRS separated these forms in 2020 to streamline processing, since nonemployee compensation has an earlier filing deadline (January 31) than most 1099-MISC payments (February 28 paper, March 31 electronic). IRS.gov
Q4: I paid someone $500 and withheld $120 for backup withholding. Do I still file?
Yes. If you withheld federal income tax under backup withholding rules, you must file Form 1099-NEC regardless of the payment amount—even if it's below the $600 threshold. Report the gross payment in Box 1 and the withheld tax in Box 4. IRS.gov
Q5: Can I file Form 1099-NEC electronically, and is it required?
You can file electronically through the IRS FIRE System (Filing Information Returns Electronically). Electronic filing becomes mandatory if you're filing 10 or more information returns of any type during the calendar year. Electronic filing offers faster processing, immediate acknowledgment of receipt, and reduces errors compared to paper filing. The IRS strongly encourages electronic filing for all filers. IRS.gov
Q6: What if a contractor refuses to provide their Social Security Number or EIN?
If a contractor won't provide a TIN, you must begin backup withholding at 24% on all payments. Report the payments and backup withholding on Form 1099-NEC using the contractor's name and address, leaving the TIN field blank. The contractor will receive credit for the withheld amounts when filing their tax return. The contractor may also face a separate penalty under Section 6723 for failure to provide a TIN. IRS.gov
Q7: I hired my teenage son to help with my business. Do I file Form 1099-NEC?
Generally, no. If your child is under 18 and works in your trade or business (sole proprietorship or partnership where both parents are partners), payments aren't subject to Social Security, Medicare, or FUTA taxes, and no Form 1099-NEC is required. However, if your business is incorporated or your child is 18 or older, different rules apply. Consult IRS Publication 15 (Circular E) for specific guidance on family employment situations.
For More Information: Visit IRS.gov for the latest forms, instructions, and updates. The IRS Instructions for Forms 1099-MISC and 1099-NEC provide comprehensive details, and Publication 1220 explains electronic filing procedures. IRS.gov
