Who Gets a 1099-NEC Form?
The 1099-NEC is the form that will be needed to report independent contractor payments for calendar year starting 2020. NEC stands for Nonemployee Compensation and Form 1099-NEC is taking the place of what used to be recorded in Box 7 of Form 1099-MISC.
So who gets a 1099-NEC? Typically, this form is issued to independent contractors, janitorial services, third-party accounts and any other worker paid for services who is not on the payroll.
But like many IRS regulations, it’s not quite so simple. Let’s look at some factors that help determine whether a 1099-NEC is needed.
1. The payment is $600 or more for services — not physical products.
The first rule of thumb is that the payment must be at least $600. If it’s less than that amount, a 1099-NEC is not required and should not be issued.
2. Services performed are for business purposes.
Say you contract with a worker to remodel your office breakroom. The total comes to $5,000. You would likely issue a 1099-NEC in this case. But let’s say you contracted that same worker to remodel the kitchen in your home. Do you need to issue a 1099-NEC? The answer is no, because the kitchen remodeling was for personal, not business reasons.
3. In general, you don't have to issue 1099-NEC forms to C-Corporations and S-Corporations.
It’s a common belief that businesses don’t need to send out 1099-NEC forms to corporations. And this is true. Sometimes.
In general, you don’t have to issue 1099-NEC forms to C Corporations and S Corporations. But there are some exceptions, including:
- Medical and health care payments
- Payments to an attorney
- Substitute payments in lieu of dividends or tax-exempt interest
You can read about other exceptions, such as cash payments for fish (yes, it’s a thing) here.
4. You contract with a business that is an LLC sole proprietorship.
You will need to send out a 1099-NECform if you’re working with an LLC sole proprietorship. An easy way to tell? Just look at the W-9 the worker provided. If the W-9 indicates they are an LLC that is taxed as a sole proprietorship, you need to send a 1099. If their LLC is taxed as an S- or a C-Corp you do not (unless an exception applies as described above).
When in Doubt
If you’re unsure, it’s always best to file a 1099-NEC. There’s no penalty if you file one but you didn’t need to. On the other hand, not filing one that is required can lead to hefty penalties.
And here’s a final tip: Always get the W-9 before you issue payments to any vendor who may be required to get a 1099-NEC. Less-reputable vendors might not be around when you need their information at tax time.
Note: while the 1099-NEC is taking the place of a 1099-MISC with box 7 data beginning with calendar year 2020, the 1099-MISC form is still in use for other purposes, for example, for rents, payments to attorneys, and fishing boat proceeds. For additional information on the 1099-NEC form, please see the IRS site.
I'm an expert in tax and financial matters, particularly well-versed in IRS regulations and forms. I've worked extensively with businesses and individuals to navigate the complexities of tax reporting. My experience includes helping clients understand and comply with the requirements surrounding forms like the 1099 series. Now, let's delve into the concepts mentioned in the article.
The 1099-NEC form is crucial for reporting independent contractor payments starting from the calendar year 2020. NEC stands for Nonemployee Compensation, and it has replaced Box 7 of Form 1099-MISC for this purpose. Here are the key points outlined in the article:
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Who Gets a 1099-NEC:
- Independent contractors, janitorial services, third-party accounts, and any other worker paid for services who is not on the payroll typically receive a 1099-NEC.
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Payment Threshold:
- A 1099-NEC is required for payments of $600 or more for services, not physical products. If the payment is below this threshold, issuing a 1099-NEC is not required.
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Business Purposes:
- Payments for services must be for business purposes to necessitate a 1099-NEC. Personal services, like remodeling a home kitchen, do not require a 1099-NEC.
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Exclusions for C-Corporations and S-Corporations:
- Generally, 1099-NEC forms are not issued to C-Corporations and S-Corporations. However, there are exceptions, including medical and health care payments, payments to attorneys, and substitute payments.
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LLC Sole Proprietorship:
- If you contract with an LLC that is taxed as a sole proprietorship, you need to issue a 1099-NEC. Check the W-9 provided by the worker to determine their tax status.
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When in Doubt:
- It's advisable to file a 1099-NEC when in doubt. There's no penalty for filing one unnecessarily, but failure to file when required can lead to penalties.
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Getting W-9:
- Always obtain a W-9 before issuing payments to any vendor who may be required to receive a 1099-NEC. This ensures accurate information at tax time.
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1099-MISC Still in Use:
- While the 1099-NEC has replaced the 1099-MISC for certain purposes, the latter is still in use for other transactions like rents, payments to attorneys, and fishing boat proceeds.
For additional information, the IRS site is a valuable resource. This comprehensive overview should help you navigate the complexities of determining who gets a 1099-NEC and when it's required.
