Did you hire an individual to work as a freelancer? Then you need to issue Form 1099 NEC to the individual and the IRS by the year-end. From the past few years, payments made to non0employees are reported on 1099 MISC Box 7. But the IRS changed the reporting process from 1099 MISC Box 7 to a new 1099 NEC Tax Form.
Getting confused? Don’t worry! We will provide the information about what you need to know before e-filing 1099 NEC. Additionally, we provide information about the type of income reported on the tax return.
What Type of Income Do You Report on a 1099 NEC Tax Form?
1099 NEC Form used to report income paid to the independent contractors who are not treated as employees. In general, employers use the W-2 Form to report employment income. Furthermore, employers who hire self-employed individuals or small service firms on a contract basis are treated as an independent worker. Examples of independent contractors include graphic designer, web developer, cleaning service, freelance writer, forum moderator. For example, if you pay an individual to perform landscape work related to the business, report the payments by e-filing Form 1099 NEC.
When Do You Need to Issue a Form 1099 NEC to a Foreign Worker?
Generally, if you hire a non-U.S. citizen to perform work remotely from another country, then 1099 NEC Form not required. For instance, let’s say you hire a freelance writer who is a U.K. citizen. So, as the freelance writer performs all the services like writing the articles outside the U.S. Then the freelancer considered a “Non-U.S. Citizen”. The payments made to the freelance writer exceed $600 in a tax period. In that case, you’re not required to issue a Form 1099 NEC to the freelance writer. Moreover, if the foreign worker performs works within the U.S., then you need to file a 1099 NEC.
So, before issuing an information return form the payer is responsible:
- To identify the individual as U.S Citizen or non-U.S. Citizen.
- Work performed by the individual inside the US or outside the United States.
Do You Need to Issue a 1099 NEC for Corporations?
In general, you must not use a 1099 NEC Tax Form to report the payments made to the corporations. Suppose you pay an individual who is a C or S corporation and works as a web designer for your business. As the individual is a corporation, you do not need to issue a 1099 NEC. Furthermore, there is a limited exception to the corporation rule. For instance, if the payment made to an attorney who provides legal services, then you can issue a 1099 NEC.
Moreover, When the payments made to a single-member Limited Liable Company, then you can issue the information return form to the individual. Make sure that single-member LLCs are not treated as corporations. Furthermore, you can identify the difference between an LLC and a corporation with the help of the W-9 Form. An LLCs usually has the letter Ltd or LLC at the end of the organization name. The names of the corporations typically end with Inc or Corp.
What if You Pay 1099 Workers Electronically?
In some cases, you may pay the contractors electronically through third-party networks like PayPal or credit or debit card. When the payments made to unincorporated business or contractors electronically, then you are not required to issue a 1099 NEC to that payee. According to the IRS, payments made through third-party networks or payment cards are reported using Form 1099 K. So, the payment settlement entity responsible to issue 1099 K to the respective payee by the year-end.
How Do You Issue IRS 1099 NEC Forms?
Employers or business individuals must complete the forms and send them to the recipient within the due dates. Furthermore, you need to file 1099 NEC Forms to the IRS and the state tax authorities. There are three different ways to issue the information returns:
- You can file 1099 NEC Forms on your own. This means you need to complete the paperwork on your own and mail the copies to the IRS and the recipients.
- Use an e-filing service authorized by the IRS. When filing tax forms manually is too complex, you can choose to e-file 1099 NEC by paying for a filing service.
- You can have the tax preparer handle the information return forms for you. Tax preparers fill out the tax forms on your behalf and mail them to the workers.
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