New IRS requirements: What is Form 1099-NEC?

January 13, 2021

By Jaime Lizotte, Tax & HR Compliance Solutions Manager on behalf of NSBA partner efile4biz.

The IRS has recently released Form 1099-NEC. This new form replaces Form 1099-MISC box 7 for reporting non-employee compensation. Although the 1099-MISC is still in use, independent contractor payments made in 2020 and beyond will be reported on the new form 1099-NEC.

When to Use the 1099-NEC

Just like the old 1099-MISC box 7, the 1099-NEC captures payments to service providers — typically work done by an independent contractor. Common examples include:

  • Graphic designers
  • Web developers
  • Cleaning professionals
  • Freelance writers
  • Landscapers
  • And other self-employed individuals

There are other conditions that must be met to necessitate a 1099-NEC. First, the payment must be $600 or more. If you paid a contractor $500 in 2020 to paint your offices, you don’t have to complete a 1099-NEC. However, if you paid the contractor $500 in March, and another $200 in June, you must file the form because the total amount is more than $600.

In addition, the payment must be for services. You don’t submit a 1099-NEC for physical products.

Next, services mut be performed for business purposes. If you contract with a worker to remodel your breakroom, for example, a 1099-NEC would likely be issued. But if you contracted with that worker to update the kitchen in your home, you do not need to file because the remodeling was for personal, not business, reasons.

Now what about corporations? In general, you don’t have to issue 1099-NEC forms to C-Corporations and S-Corporations. But there are some exceptions including:

  • Medical and healthcare payments
  • Payments to an attorney
  • Substitute payments in lieu of dividends or tax-exempt interest

Lastly, you will need to send out a 1099-NEC form if you’re working with an LLC sole proprietorship. An easy way to tell is to review the W-9 form the worker provided. If the W-9 indicates they are an LLC that is taxed as a sole proprietorship, you need to file a form. If their LLC is taxed as an S- or C-Corp, you do not (unless an exception applies as previously described).

For More Information and Guidance

Visit eFile4Biz to see an image of the 1099-NEC along with instructions on how to complete the form. Plus, this site gives you an easy, accurate way to electronically file your 1099s ― so you can meet IRS deadlines and avoid penalties. The 1099-NEC is available on the site and it’s free to try. You only pay when you’re ready to file.