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What Is a 1099-NEC Form?

By Kira Gavalakis

Published on 27 Apr 2023 4 min read

The number of 1099 forms out there is enough to make someone’s head spin! If you’ve worked with 1099s before, you’ve probably noticed first-hand that there’s a multitude of 1099 form types: 1099-K, 1099-A, B, and C, 1099-INT, and 1099-DIV, and on and on. So, what is a 1099-NEC form? Let’s answer all your questions about it so you’re crystal clear on when to use it.

The 1099-NEC Form stands for non-employee compensation (NEC), and within the past few years, has been used as a new alternative to the 1099-MISC form (which stands for miscellaneous). It’s particularly used for individuals or businesses who’ve paid more than $600 to a non-employee contractor.

Understanding 1099-NEC Form

There are several different 1099-type forms, each attributing to different tax situations between businesses and independent contractors, and until around 1982, the Internal Revenue Service (IRS) had a 1099-NEC form before they eliminated them for 30 or so years in an attempt to condense forms. What was replaced was the more all-encompassing 1099-MISC to consolidate 1099 all work together. But fast forward to the Protecting Americans From the Tax Hikes Act of 2015, or PATH Act, and some administrative issues with condensing the forms erupted, causing the potential for more tax fraud.

So, in 2020, the IRS tweaked some of the needs for the new form, bringing back the 1099-NEC so contractors and businesses could have a little more clarity on what they can use the form for.

Thus, the 1099-NEC was reintroduced… with some more updated usages, including:

• Someone who isn’t a business employee
• Services performed within your trade or business
• Payment made to either an individual or sole proprietor, partnership, estate, or (sometimes) a corporation
• A business or individual who made a payment to an independent contractor worth $600 or more

What is Nonemployee Compensation?

A freelancer, independent contractor, gig workers, or another type of non-employee that performs work for pay, has likely interacted with nonemployee compensation a good number of times and is considered a nonemployee as well. This isn’t just limited to services performed, though. It could also include things like fees, commissions, prizes, and awards paid to those non-employee workers, too, all being reported directly to the IRS using Form 1099-NEC.

If you’re a business owner who has outsourced some of your work, then you’re probably working with a non-employee yourself!

Who Needs to File 1099-NEC?

Businesses and individuals that are paying a non-employee more than $600 in the tax year, will likely need to fill out a 1099-NEC to account for the money paid to those non-employees.

Example: Clara’s business hired out work to an independent contractor to help her design and manage her website. The total money she spent on her independent contractor was $12,000 during the year. That following January, she will fill out a 1099-NEC to report the non-employee work she paid to her contractor the previous year, as well as send it over to her contractor so they can report it by the April tax filing deadline.

Who Doesn’t Need to File 1099-NEC?

If you’re a business owner and match one of the qualifiers below, then you don’t need to worry about fussing around with a 1099-NEC in January.

• You haven’t paid any non-employees this year
• You’ve paid nonemployees, but it was under $600 total within the year
• You paid a government agency
• You paid someone outside of America
• You paid a family member

There are a few other requirements, so be sure to do your research if you feel like you might need to fill it out.

When Are 1099-NEC Forms Due?

1099-NEC forms are due by January 31st of the following tax year. For example, if you’re filing for the tax year 2023, you’ll be sending out 1099-NEC tax forms in January 2024.

How Do You File Form 1099-NEC?

Be prepared with the following information when filing your 1099-NEC, including:

• Your business’s information, like your Employer Identification Number (EIN) and business address
• Your contractor’s EIN or Social Security number

Then, fill out the individual boxes with 1099-NEC-specific information, including:

• Box 1, the amount of nonemployee compensation you paid
• Box 2, which is reported sales, which reports sales of $5,000 or more resale, buy-sell, or deposit-commission (to name a few) consumer products
• Box 4, the amount (if any) of federal income tax withheld from your independent contractor

Do You Still Need to File Form 1099-MISC?

The 1099-MISC is still around but is used for extraneous payments, like awards or prizes (or rent), but starting in 2020, you do not need to use this form for non-employees, you would use Form 1099-NEC instead.

You’ll probably see the biggest difference coming in Box 7— previously, it had asked for nonemployee compensation, but since that’s moved to Form 1099-NEC, it’s now a section to report direct sales of $5,000 or more.

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Making sure you are staying compliant with everything for your employees and non-employees can be a full-time task on top of trying to run your business efficiently.

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