- November 9, 2022
Until the year 2020, the Internal Revenue Service made use of Form 1099-MISC to report their self-employment taxes and the revenue generated from their freelancing and self-employment jobs. From the year 2020, a new Form has been introduced to help businesses and taxpayers to report their income of $600 or more, generated from work outside their regular employment. The ultimate aim of this Form is to clarify separate filing deadlines while reporting different types of payments on Form 1099-MISC. With the introduction of Form 1099- NEC, the IRS ensures that all the payments reported on this Form will use a single filing deadline.
Deadline for filing Form 1099- NEC
Self-employed individuals who worked as independent contractors of a business and have got $600 or more as compensation can expect to get Form 1099-NEC for the tax year 2020 or later. Taxpayers can receive these Forms by January 31st each year and use them to prepare their tax returns.
What is included under non-employee compensation?
Non-Employee Compensation refers to payments that are made to someone who is not on the regular payroll of the organization. These payments are generally made in the course of the trade or the business that is equal to or greater than $600 for a year. Non-employee compensation payments also refer to payments made to an individual, estate, partnership, or corporation. Businesses are also required to file Form 1099- NEC with the IRS if they pay at least $10 as royalties to individuals.
Non-employee compensation also includes fees and benefits, commissions, prizes, and awards for the services performed by a non-employee. Other forms of compensation made to an individual who is not on the regular employee list of an organization will also have to be reported in Form 1099- NEC.
Form 1099-NEC explained:
Payments that are made for the services rendered by independent contractors are reported in this Form. The Form also reports payments made in the course of fish trade, fees paid to attorneys in Box 1. Box 4 reports federal income tax withheld during the year. Boxes 5 through 7 are meant for state income tax purposes. The Gross proceeds, including the settlement payments for attorneys, should not be reported on Form 10990 NEC. They should rather be reported on Box 10 of Form 1099-MISC. 1099-NEC only reports direct legal fees that are paid to attorneys.
There are five different copies of Form 1099- NEC. Copy A of the Form should be filed with the IRS. Copy B will be sent to the recipient and copy C is retained for business records. Copy 1 of the Form should be filed with the state agencies and Copy 2 should be given to the recipients to file with their state IT returns.
Bottom Line:
Freelancers, self-employed individuals, independent contractors, and sole proprietors are examples of non-employees who will get IRS Form 1099- NEC from their independent contractors. It is mandatory to file this 1099 Form within the deadline to avoid late fines and penalties and the best way is to e-file them.
