How do I report 1099-NEC Nonemployee Compensation?

Form NEC 1099 pertains solely for reporting the non-employee compensations and used for reporting independent contractor payments. This is a variation of Form 1099-MISC which can be used by taxpayers to submit information about non-employee compensation only. Taxpayers should file Form 1099-NEC by 31st January 2021 and for the year 2020 tax returns, the due date is stated as February 1, 2021. The extension to file is available only under special circumstances.

Things that are reported in the form 1099- NEC

Form 1099-NEC is used specifically to report non-employee compensation, which includes the payments made to independent contractors. These compensations include commissions, prizes, awards, fees, and other forms of compensation for services incurred. It is important to report a payment as non-employee compensation under the following conditions:

    • Payments made to an individual who is not on the regular payroll of the organization should be reported.
    • The payments that are made in the course of the business or trade should be reported.
    • Payments that are made for any individual, estate, corporation, or partnership should be reported in the NEC-1099 form.
    • All payment that mounts up to $600 during the year should be reported.

How to Report Form 1099-NEC?

If a business newly hires independent contractors, then they have to use the Form W9 to fill Form 1099-NEC. While reporting the non-employee compensation details in this form, it is important to include the following details:

    • Complete name, address, and phone number of the taxpayer.
    • The taxpayer identification number of the TIN should be disclosed in the form.
    • The name, address, and the TIN of the recipient.
    • The total non-employee compensation should be reported.
    • If applicable, the federal and state income tax withheld details should also be furnished.

Specific instructions to fill Form 1099-NEC

The IRS asks individuals to File Form 1099-NEC for payments of $600 and above, paid to individuals during the year. The following things should be reported in the form:

    • Box 1: Report services that are performed by someone (including material, parts, and labor) who is not on the payroll.
    • Box 1: Report cash payments for fish or aquatic life that is purchased from someone who is engaged in the business or trade of catching fish.
    • Box 1: Payments made to attorneys.
    • Box 4: The 1099- NEC should be filed for each person from whom the person has withheld any federal income tax, under the rules about backup withholding, regardless of the amount of payment.

Payments that are made in the course of trade or business should alone be reported in Form 1099-NEC and personal payments are not reportable. Payments that are made to an LLC or corporation, payments for telegrams, telephones, and freight, etc., need not be reported in this form. 1099-NEC must be reported to the IRS, state tax department, and independent contractors; should be maintained in the business records as well. File this form either electronically or by sending mail to the IRS.