## What is Form 1099-NEC?

Form 1099-NEC (Nonemployee Compensation) is used to report payments of $600 or more to nonemployees, such as independent contractors, freelancers, and other self-employed individuals. The form was reintroduced by the IRS in 2020 to separate nonemployee compensation from Form 1099-MISC.

Before You Start: Information You Need

Before filling out the 1099-NEC, gather the following information:

Payer Information (Your Business): - Legal business name - Business address - Employer Identification Number (EIN) or Social Security Number

Recipient Information: - Contractor's legal name - Contractor's address - Contractor's TIN (SSN or EIN) - Total amount paid during the year

Important: You should have collected this information on Form W-9 before making payments.

Step-by-Step Guide to Filling Out Form 1099-NEC

Box: PAYER'S Name, Address, and Phone

Enter your business information exactly as it appears on your tax documents:

Business name (or your name if sole proprietor)
Street address
City, state, and ZIP code
Telephone number

Example: ``` SMITH CONSULTING LLC 123 Business Ave, Suite 100 Alexandria, VA 22302 (202) 555-0100 ```

Box: PAYER'S TIN

Enter your Employer Identification Number (EIN) or Social Security Number:
Format for EIN: XX-XXXXXXX
Format for SSN: XXX-XX-XXXX

Box: RECIPIENT'S TIN

Enter the contractor's Tax Identification Number:
Individual contractors: Social Security Number (SSN)
Business entities: Employer Identification Number (EIN)

Critical: This must match the information on the W-9 they provided. Mismatches can result in IRS notices and penalties.

Box: RECIPIENT'S Name and Address

Enter the contractor's information exactly as shown on their W-9:

Legal name (first, middle initial, last) or business name
Street address
City, state, and ZIP code

Box: Account Number (Optional)

This is optional and for your records only. You might use:
Vendor number
Invoice number
Contract reference number

FATCA Filing Requirement Checkbox

Check this box if you're filing to report a payment made to a foreign financial institution (FFI) under the Foreign Account Tax Compliance Act. Most domestic payments do not require this.

Box 1: Nonemployee Compensation

This is the most important box.

Enter the total amount of nonemployee compensation paid during the calendar year. This includes:

Payments for services performed by independent contractors
Professional fees (lawyers, accountants, consultants)
Commissions to non-employees
Fees for project-based work
Payments made by credit or debit card (do NOT include)

DO NOT include:
Reimbursed expenses (if properly documented)
Payments made via credit card, debit card, or third-party payment networks (these are reported on 1099-K)
Payments to corporations (generally exempt)

Example: If you paid a contractor $5,000 for web development, enter 5000.00

Box 2: Direct Sales Indicator

Check this box if you made direct sales of $5,000 or more of consumer products to a buyer for resale.

Most service-based businesses leave this box unchecked.

Box 3: (Reserved)

This box is reserved for future IRS use. Leave it blank.

Box 4: Federal Income Tax Withheld

Enter any federal income tax withheld from payments. This typically applies only if:

The recipient failed to provide a valid TIN (backup withholding)
You're required to withhold for other reasons

Backup withholding rate is 24% of the payment.

Most 1099-NEC forms will have $0 in this box because contractors are responsible for their own taxes.

Boxes 5-7: State Tax Information

Complete these boxes if you're required to report state taxes:

Box 5: State tax withheld (if applicable)
Box 6: State/Payer's state number
Box 7: State income (may differ from Box 1)

Note: Not all states require 1099 filing. Check your state's requirements.

Which Copy Goes Where?

Form 1099-NEC has multiple copies for different recipients:

| Copy | Recipient | Purpose | |------|-----------|---------| | Copy A | IRS | File with federal return | | Copy 1 | State Tax Dept | If required by state | | Copy B | Recipient | For their records | | Copy 2 | Recipient | For state filing | | Copy C | Payer | Your records |

Common Mistakes to Avoid

1. Wrong Form Don't use 1099-MISC for contractor payments. Use 1099-NEC.

2. TIN Mismatches Always verify the contractor's TIN matches their W-9 and IRS records.

3. Including Card Payments Payments made by credit/debit card are reported on Form 1099-K by the payment processor, not by you.

4. Missing the Deadline The 1099-NEC must be filed AND sent to recipients by January 31. No extensions.

5. Forgetting to Get W-9s Always collect Form W-9 before making payments to avoid scrambling at year-end.

6. Checking the VOID Box Never check the VOID box on a form you're submitting. This tells IRS scanners to ignore it.

Electronic vs. Paper Filing

Electronic Filing (Recommended): - Required if filing 10+ information returns - Extended deadline for most forms (not 1099-NEC) - Fewer errors - Faster processing

Paper Filing: - Must use official IRS forms or approved substitutes - Red ink copies for IRS submission - Mail to appropriate IRS service center

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*Disclaimer: This guide is for informational purposes only. For specific tax advice, please consult with a qualified tax professional or CPA.*

How to Fill Out a 1099-NEC Form: Step-by-Step Guide