Who Really Needs IRS Form 1099 NEC?

Did you pay an individual of $600 in the prior year? Is the individual an employee? If “No”, then you need to issue a 1099 information return. As per the IRS, to report contractor income you must file Form 1099 MISC or 1099 NEC. So, when the contractor performs services related to your business then issue printable Form 1099 NEC. If you made payments related to rent, royalties etc, and issue 1099 MISC.

Getting confused? Don’t worry! We will let you know who really needs an IRS 1099 NEC. We also provide you information about what is a 1099 NEC, when you are required to file. Besides, you’ll also get to know about what happens if you fail to file a 1099 tax return.

irs form 1099 nec

What is 1099 NEC Tax Form?

IRS 1099 NEC used to report compensation paid to non-employees, self-employed individuals, independent contractors etc. Previously, these payments were reported on Form 1099 MISC. But from 2020 tax year, you must report the non-employee compensation on the new 1099 NEC Tax Form. This means, if you made payments to non-employees like prizes or rewards in 2020, then report it on new Form 1099 NEC in 2021. This new tax form was added to 1099 series in the 2020 tax year to clarify deadline confusion using a single form.

Am I required to file Form 1099 NEC or 1099 MISC?

With the help of below information, you can determine which 1099 Form to file:

Form 1099 NEC

  • Use 1099 NEC to report non-employee compensation made throughout the tax year.
  • Report the payments exceeding $600 in a tax period on the tax form.
  • Include the payments made for services performed related to business or trade.
  • The person whom you are paying must be an individual, estate, partnership, but not corporation.
  • Report the payment made to law firms for performing legal services like fees etc on 1099 NEC.

1099 MISC Form

  • Use 1099 MISC to report miscellaneous income paid to the contractors in a calendar year.
  • Payments made throughout the tax period of $600 or more are reported on the tax return.
  • Include al the miscellaneous income paid to the individuals on course of business or trade.
  • Report the payments made to individuals, estate, partnership on 1099 MISC.
  • Include the payments made to attorney for providing legal information on course of business on the tax return.

What happens if I don’t file 1099 NEC?

When a business fails to file 1099 NEC Tax Return within the deadline, the IRS imposes penalty. The penalty amount depends on when you file a 1099 after missing the due date. Besides, the penalty amount is high if you intentionally fail to submit tax returns within the key date. Given below are the penalty details if you don’t file 1099 NEC:

  • $50 per 1099 information if you fail to file within the deadline.
  • $110 per form when you fail to submit tax returns within 30 days after due date and by August 1st.
  • $280 per information returns filed after August 1st.
  • If you intentionally failed to file 1099 NEC, then you must pay $550 per 1099 Form to the IRS.

Do you have to issue a Federal 1099 NEC if you paid with credit card?

No, you are not required to prepare a 1099 NEC or 1099 MISC when you made payments using credit cards, debit cards, stored-value cards, mobile wallets. You must file an IRS 1099 NEC when you made payments using cash, check or similar payment methods. Besides, payment settlement entity is responsible to report the payments made through credit/debit cards. On the other hand, the individuals who accept payments through payment cards receive 1099 K Form. As per the IRS norms, “payments made through third-party networks like PayPal, credit/debit cards must be reported on Form 1099 K”. Hence, you must not issue a 1099 NEC if you paid through payment cards.

Will I get audited if I forgot a 1099?

As we know, the payer who fails to file a 1099 information returns will be subjected to penalties. Similarly, the contractor who fails to report 1099 income on their tax return gets audited by the IRS. Because, the payer sends 1099 information returns to the contractor and as well as to the IRS. The IRS checks whether the contractors are reporting 1099 income with the help of SSN mentioned on the form. Therefore, you will be subjected to penalty of nearly 25% on the income you have earned.

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