Understanding Form 1099 NEC: A Guide for Taxpayers

What is form 1099?

A 1099 is used to report certain types of non-employee compensation to the IRS. If you hire a contractor or vendor to work for your business and payments are equal to $600 or more through the bank, you need to fill out a 1099-NEC form. There are also other types of 1099 forms that are used to report income from interest, dividends, government payments, and more. For example, 1099-NEC, 1099-INT, 1099-DIV, the most common is the 1099-NEC (Nonemployee Compensation), which reports income paid to independent contractors or freelancers.

Who Issues 1099 -NEC

File Form 1099-NEC, Nonemployee Compensation, for each person in the course of your business to whom you have paid the following during the year.

  1. To Any contractor or freelancer who has earned $600 or more in a given tax year.
  2. You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax.

Requirements

  1. Form W-9 containing Name, Address and either EIN or SSN
  2.  A detailed record of payments made to the vendor during the tax year.
  3. Total Amount Paid
  4. Email Address

Filing Deadlines: For the 2024 tax year, Form 1099 must be filed with the IRS by January 31st, and a copy must be provided to the recipient by the same date. Late filings may incur penalties.

Penalties for Non-Compliance: If businesses fail to submit Form 1099 correctly or on time, they could face significant fines, which increase with the length of the delay. Penalties range from $50 to $280 per form, depending on how late the submission is.

Ways to File

Manual Filing: To file manually, you must order physical copies from the IRS or get them from an authorized distributor. You can order 1099 forms by visiting the IRS website or by calling the IRS at 1-800-829-3676.

Electronic Filing: Businesses filing 250 or more forms are required to file electronically with the IRS. Accounting software like QuickBooks, Zero, Zoho now also provide this service.