Are you a freelancer or independent contractor? Perhaps you hired one to provide services for your business? If you fall on either side of the spectrum you need to understand Form 1099-NEC.
Form 1099 NEC, requires business owners to report payments to non-employees starting in 2020. Prior to 2020, business owners reported these payments on Form 1099 – MISC.
Who Needs to File a 1099 NEC?
Your business needs to file a 1099-NEC for any individual, single member LLC, LLC taxed as a partnership or partnership that meets the following conditions:
Note – S Corps and Corporations are exempt from this requirement. This is why it is important to collect W-9’s from all vendors prior to paying them so you know how the entity is taxed.
When is the deadline?
You must provide a copy to the payee and file with the IRS by January 31st. You have the option to either mail it to the IRS (must be postmarked by 1/31) or you can file electronically which is my recommendation. Note there are hefty penalties for being late or failing to file so this is definitely a date you want to mark on your calendar with several reminders.
What payments do I include and what should be excluded?
As a general rule of thumb, if the payment was made using a Debit or Credit Card those payments should not be reported on Form 1099-NEC or 1099-MISC because the third party will report these to the IRS on Form 1099-K.
See below list of common examples of payment methods that should be reported:
Disclaimer: Nothing in this blog should be construed as tax advice. Please consult with your accountant regarding your situation