A box-wise explanation to read and e-file Form 1099-NEC easily.
Tax season is picking up speed as 2020 is coming to an end. Starting with the New Year in 2021, businesses and professionals alike have to file their tax forms to the IRS for the tax year 2020-2021.
However, a major change to the Form 1099-MISC resulted in the re-introduction of Form 1099-NEC.
Form 1099-NEC (get the form here for free) has to be filed along with other tax forms to separately report nonemployee compensations starting this tax year 2020-2021. This move by the IRS requires businesses to be more conscious of classifying employed workers and independent contractors.
If you are a business owner, it is your responsibility to accurately file your 1099-NEC forms to the IRS. While doing so, you also have to send a copy of the form to the payee or recipient with prior consent.
This allows both the business (you) and the recipient to be on the same page and accurately report to the IRS.
How to Read Form 1099-NEC: If You’re a Business/Payer
If you’re a business owner/payer you should know how to read and understand Form 1099-NEC boxes.
Box 1: Nonemployee Compensation
If you are a business, this box is used to report nonemployee compensations that you have paid to independent contractors or vendors, or freelancers for their services. If the amount paid to each contractor is at least $600 or more, then enter the specific amount here. If the amount is less than $600, you do not have to file this form.
Generally, nonemployee compensations can be service fees, cash payments made for the purchase of fish or other aquatic livestock, and more.
You can learn more about what constitutes nonemployee compensations here.
Box 2: Reserved
Box 3: Reserved
Box 4: Federal Income Tax Withheld
This box is used to report any backup that you may have withheld from the payee. Some businesses report backup withheld because their payee(s) could not furnish the necessary documentation, such as TINs, and such information must be reported to the IRS through this form.
Which payments are considered backup withholding?
- Service fees paid to attorneys.
- Service fees paid to accountants, architects, contractors, engineers, and more.
- Service fees paid to organizations.
- Split-fee or referral fees.
- Payments made by attorneys to witnesses or experts in legal adjudication.
Learn more about backup withholding’s here.
How to Read Form 1099-NEC: If You’re Self-Employed/Payee
The above explanation was from the point of view of the payer. But this section is from the payee’s perspective and helping the payee to read the Form 1099-NEC sent to them by the payer.
If you are a payee and your payer did not send a copy of the 1099-NEC to you, then you have to alert your payee to send the copy of Form 1099-NEC. In return, you may have to furnish the necessary information such as your TIN and other specific information.
Box 1: Nonemployee Compensation
Use this box to check if the amount paid to you as nonemployee compensation matches the amount entered here by your payer. If the amount is incorrect, the same must be clarified with your payer and if required, must be reported to the IRS.
Please note that the payer does not have to file Form 1099-NEC if the amount paid to you (the payee) is less than $600.
Box 2: Reserved
Box 3: Reserved
Box 4: Federal Income Tax Withheld
Cross-check the backup withheld from your total payment here. If the amount is incorrect, inform the same to your payer.
Box 5-7: State-Specific Tax Information
Check if the TIN provided by you matches the TIN specified in this box. Please note that you will not receive a copy of this form from the payer if you did not furnish the TIN to your payer.
If You Have Been Misclassified As a Non-Employed Worker
If you are an employed worker and your employer misclassified you as a non-employed worker or vendor or independent contractor or freelancer, then you have to get the IRS involved by submitting Form SS-8.
Better known as the ‘Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding’ form, it helps employed workers to report their misclassification issue to the IRS. There are no fees or charges for filing this form. It’s absolutely free.
Now, before you report the issue to the IRS, try to understand if this misclassification was intentional. Either way, gather enough evidence to support your cause to help the IRS to investigate your case.
How to E-file 1099-NEC with Tax1099
You can easily e-file Form 1099-NEC with Tax1099, an award-winning, IRS-approved e-filing platform.
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Learn more about how to file Form 1099-NEC from Tax1099.
