Form 1099-NEC 2021 Filing Checklist
Purpose and Overview
Form 1099-NEC reports nonemployee compensation paid to independent contractors and other service providers. The IRS reintroduced this form for use in the 2020 tax year, after it had been discontinued in 1982. For 2021, businesses must use Form 1099-NEC to report all qualifying payments to nonemployees and direct sales of consumer products for resale.
What You Need to Know Before Filing
Reporting Threshold
You must file Form 1099-NEC if you paid $600 or more in nonemployee compensation during the calendar year. This threshold applies to payments made to individuals, partnerships, estates, and certain corporations for services performed in your trade or business. Payments under $600 do not require reporting unless you withheld federal income tax under backup withholding rules.
Who Must File
File Form 1099-NEC if you operate a trade or business and made payments to nonemployees for services. This includes for-profit companies, nonprofit organizations, tax-exempt entities, qualified pension or profit-sharing plan trusts, farmers’ cooperatives, and federal, state, or local government agencies.
Filing Deadlines
Form 1099-NEC must be filed with the IRS and furnished to recipients by January 31, 2022. Unlike Form 1099-MISC, which has later deadlines for electronic filing, Form 1099-NEC has a unified January 31 deadline regardless of filing method. This accelerated deadline ensures nonemployee compensation is reported early in the tax season.
Step-by-Step Filing Checklist
Step 1: Verify Taxpayer Identification Numbers
Confirm the accuracy of both your payer TIN and each recipient’s TIN before filing. The IRS requires complete TIN reporting on Copy A filed with the agency. For recipient copies, you may truncate the TIN to show only the last four digits for privacy protection, but never truncate the payer’s TIN on any form.
Step 2: Determine Reportable Payments
Identify all payments of $600 or more made to nonemployees for services during 2021. Include fees, commissions, prizes, awards, and other compensation forms. Report payments made in the course of your trade or business only. Personal payments are not reportable. Do not report payments to corporations except for attorneys’ fees, payments by federal executive agencies for services, and cash payments for fish purchases for resale.
Step 3: Complete Box 1 for Nonemployee Compensation
Enter the total amount of nonemployee compensation paid to each recipient in 2021. This includes professional service fees paid to attorneys, accountants, architects, contractors, and engineers. Report commissions paid to nonemployee salespersons, payments to independent contractors, fees paid to nonemployee entertainers, taxable fringe benefits for nonemployees, and directors’ fees. Include oil and gas payments for working interests and payments for services where parts or materials were incidental to the service.
Step 4: Mark Box 2 for Direct Sales if Applicable
Check Box 2 if you made direct sales totaling $5,000 or more of consumer products to the recipient for resale during 2021. This applies to sales made on a buy-sell, deposit-commission, or other commission basis for resale, except in a permanent retail establishment. Do not enter a dollar amount in this checkbox. You may report these sales on Form 1099-MISC Box 7 instead of Form 1099-NEC Box 2, but if you use Form 1099-NEC, you must file by January 31.
Step 5: Leave Box 3 Blank
Box 3 is reserved for future use in 2021 and contains no reporting requirement. Do not enter any information in this box for tax year 2021.
Step 6: Report Backup Withholding in Box 4
Enter any federal income tax withheld under backup withholding rules in Box 4. Backup withholding applies when a recipient fails to provide a TIN, furnishes an incorrect TIN, or has been notified by the IRS to begin withholding. You must file Form 1099-NEC to report backup withholding regardless of the payment amount, even if it is less than $600.
Step 7: Complete State Tax Information
Use Boxes 5 through 7 to report state income tax information if applicable. Enter any state income tax withheld in Box 5. In Box 6, enter the two-letter state abbreviation and your state identification number assigned by that state. In Box 7, enter the amount of state payment.
These boxes accommodate reporting for up to two states. This information is optional for IRS purposes but may be required for state tax departments participating in the Combined Federal/State Filing Program.
Step 8: Furnish Copy B to Recipients by January 31
Provide Copy B to each recipient by January 31, 2022. The recipient copy must include instructions explaining how to report the income. Recipients typically report nonemployee compensation on Schedule C if they operate a business, on Schedule 1 as additional income, or on Form 8919 if they dispute their classification as an independent contractor. You may furnish recipients with a single payee statement reporting all Form 1099-NEC payment types.
Step 9: File Copy A with the IRS by January 31
Submit Copy A to the IRS by January 31, 2022, using either paper or electronic filing procedures. If filing on paper, you must use official scannable Copy A forms obtained through IRS order forms or authorized vendors. Copies downloaded or printed from the IRS website cannot be scanned properly and may result in processing delays and potential penalties. When filing electronically, follow the procedures outlined in Publication 1220.
Step 10: Prepare Form 1096 for Paper Filing
If filing paper forms, complete Form 1096 as a summary transmittal and attach it to all Copy A forms when mailing to the IRS. Form 1096 reports aggregate amounts and payer identification for all forms in the submission. Enter the total number of forms and total amount reported. Do not submit Form 1096 when filing electronically.
Step 11: Instruct Recipients on Proper Reporting
Inform recipients how to report their income correctly. If a recipient believes they were misclassified as an independent contractor and should have been treated as an employee, instruct them to file Form 8919 with their Form 1040, 1040-SR, or 1040-NR. Recipients filing Form 8919 report the Box 1 amount on the wages line of their tax return rather than as self-employment income. This allows them to pay only the employee share of Social Security and Medicare taxes rather than the full self-employment tax.
Step 12: Maintain Payer Records
Retain Copy C or another copy for your business records. Keep these records for at least three years from the date of filing for compliance verification and audit purposes. Maintain supporting documentation, including contracts, invoices, payment records, and TIN certifications obtained through Form W-9. These records substantiate the reported amounts and demonstrate due diligence in obtaining accurate recipient information.
Important 2021-Specific Considerations
Electronic Filing Requirements
The Taxpayer First Act of 2019 authorized the Treasury Department and IRS to issue regulations reducing the 250-return electronic filing threshold for 2021 tax returns. If such regulations were issued and became effective for 2021 returns filed in 2022, the lower threshold would apply. Check IRS.gov for announcements regarding changes to electronic filing requirements.
Scannable Copy A Enforcement
The IRS strictly enforces scannable Copy A requirements for 2021 paper filings. Forms printed from the IRS website do not meet scanning standards because they lack the proper specifications for red ink dropout. Using non-scannable forms may result in processing delays, requests for corrected submissions, and potential penalties for failure to file on time. Order official forms through the IRS at IRS.gov/orderforms or from authorized tax form vendors.
Section 530 Worker Relief
If you qualify for relief under Section 530 of the Revenue Act of 1978, you must file Form 1099-NEC to maintain that protection. Section 530 provides a safe harbor for employment tax treatment of certain workers if specific consistency and substantive requirements are met. Additional relief requirements are discussed in Revenue Procedure 85-18.
TIN Matching and Backup Withholding
Use the IRS TIN Matching system before filing to verify recipient TINs and reduce backup withholding notices. If you receive a first TIN notice from the IRS, send a B notice to the recipient requesting TIN verification. If the IRS sends a second notice within three calendar years about the same account, mark the “2nd TIN Not” checkbox on future forms to prevent additional notices. Do not check this box if both notices were received in the same year or related to the same filing year.
Form Corrections
If you need to correct a previously filed Form 1099-NEC, check the CORRECTED box at the top of a new form and enter the correct information. Do not check the VOID box when filing a correction, as this instructs IRS scanning equipment to ignore the form entirely. For paper corrections, follow procedures in the General Instructions for Certain Information Returns. For electronic corrections, follow guidance in Publication 1220.
Payments Not Requiring Form 1099-NEC
Some payments over $600 do not require Form 1099-NEC reporting. These exceptions include payments to corporations except for attorneys' fees and other categories, wages paid to employees that must be reported on Form W-2, merchandise and similar items, rent paid to real estate agents or property managers, business travel allowances and expense reimbursements, current life insurance protection, tax-exempt organization payments, and credit card or p. Form 1099-NEC excludes scholarship and fellowship grants and foster care provider payments for difficulty of care.
Final Filing Reminders
Review all forms for accuracy before submission. Ensure recipient names match their TIN records exactly as they are registered with the Social Security Administration or the IRS. Use the correct form version marked for the 2021 tax year. Double-check that all reported amounts are accurate and that you have obtained a signed Form W-9 from recipients when possible.
File timely to avoid penalties, which can be substantial for late filing or failure to file. Keep copies of all filed forms and supporting documentation for your records. Monitor IRS correspondence for any notices regarding TIN mismatches or other filing issues and respond promptly to any requests for corrections or additional information.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
