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IRS Form 1099 NEC - Line by Line Instructions - Explained
Updated on January 20, 2021 - 10:30 AM by Admin, TaxBandits
Form 1099-NEC is an information return that is used to report non-employee compensation to the IRS. The non employee compensation includes payments made to freelancers, independent contractors, and other self-employed individuals.
Until the tax year 2019, this information was reported on Form 1099-MISC Box 7. Now the IRS has introduced Form 1099-NEC specifically to report non employee compensations. All the other miscellaneous income can still be reported in Form 1099-MISC.
In this article, we cover the following topics:
1. Complete Payer and Recipient Information:
You must file a Form 1099-NEC for each independent contractor, freelancer, and non-employee that you paid more than $600 during the tax year. You will be required to provide the following information about the recipient.
- Recipient’s name
- Recipient’s address
- Recipient’s Taxpayer Identification Number (TIN)
Similarly, the payer’s name, address, and TIN should also be reported on the form.
FATCA filing requirement (checkbox) - This checkbox must be selected if you hold assets in foreign countries.
Account number - Enter the account number designated for this recipient.
2. What information is required to fill Form 1099 NEC?
Payers must furnish correct information on 1099-NEC. The following information must be provided:
In Box 1 to Box 7, the payer reports various payments made and tax withheld from the contractor/recipient.
Line 1: Non-employee compensation
Enter the total non-employee compensation paid to the contractor throughout the tax year here. As the name suggests, non-employee compensation is the compensation paid by your business to any person who isn’t a part of your business.
This compensation should contain all the payments made, including fees, commissions, prizes, and awards for the services provided by the non-employee. The amount entered here should be
$600 or more.
Line 4: Federal income tax withheld
Enter the withholding amount from the non-employee compensation here, regardless of total payment value if the person didn’t provide his TIN.
State income taxes:
The remaining boxes from Box 5 to Box 7 are used to report the state income taxes. These boxes do not apply to everyone. You only need to mark these boxes if you withheld state income taxes from the independent contractor/non-employee.
Line 5: State tax withheld
Enter the state tax withholding if it is applicable in your state. You can report payments for up to two states.
Line 6: State/Payer’s state no
Enter your state identification number or the abbreviated name of your state. For example, MO - Missouri, MI - Michigan
Line 7: State income
Enter the amount of the state payment in this line.
3. Form copies information:
There are three copies of Form 1099-NEC:
- Copy A: To be completed and sent to IRS
- Copy B: To be sent to recipient/contractor either by postal mail or email
- Copy C: This is a paper copy
The Copy A must be filed with the IRS. The deadline to file this return for the current tax year
is February 1, 2021.
You must file Copy B and furnish it to the qualifying non-employee after the reporting year. The deadline to provide the copy to the recipient is February 1, 2021.