How to file 1099 nec electronically free

Beginning in 2020, the 1099-NEC started being used to report payments of $600 or more to service providers — typically work done by an independent contractor who is a sole proprietor or member of a partnership. Examples include graphic designers, Web developers, cleaning professionals, freelance writers, landscapers and other self-employed individuals. Basically, the 1099-NEC form is to independent contractors what the W-2 is to employees.

The 1099-NEC captures non-employee compensation, in addition to documenting that you didn’t deduct any federal, state or other taxes. Unlike employees with W-2s, independent contractors get their full pay without any automatic deductions. It’s up to them to keep track of their taxes and pay them directly to the government.

Basic 1099-NEC Filing Instructions

To complete a 1099-NEC, you'll need to supply the following data:

Business information – Your Federal Employer ID Number (EIN), your business name and your business address.

Recipient's ID Number – The recipient's Social Security number or Federal Employer ID Number (EIN).

Report Sales – Use Box 2 (or Box 7 on the 1099-MISC) to report sales of $5000 or more of consumer products for resale, on buy-sell, deposit-commission, or any other basis.

Payment Amounts – Enter nonemployee compensation amounts paid in Box 1.

Federal Income Tax Withheld – Enter any amounts of federal income tax withheld from payment in Box 4. (You'll use this if you’re sending a 1099-NEC to an individual who refused to provide a W-9 or TIN. In this case, the federal government may require you to withhold 24% of the money you paid and send it the IRS.)

There may be instances in which you need to provide both a 1099-MISC and 1099-NEC to the same individual, however that will depend on the business conducted with them in that year. If you are unsure it's always best to consult a tax attorney in order to remain compliant.

This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional. Nothing in this article constitutes tax or accounting advice. If you have questions about Form 1099-NEC, please consult a professional.

Staying up to date with tax filing guidelines is essential to running your business. This is especially true when paying sole proprietors and operators of single-member LLCs. 

With the recent reintroduction of Form 1099-NEC, employers are working with a different form than they’re used to when it comes to paying independent contractors and freelancers.

Before the 2020 tax year, employers used Box 7 of Form 1099-MISC to report non-employee compensation for sole proprietors and other self-employed parties. Now, non-employee pay is reported using Form 1099-NEC: Non-employee Compensation.

What is Form 1099-NEC?

The IRS reintroduced Form 1099-NEC — which had fallen out of use in the 1980s — to simplify non-employee compensation reporting. The IRS requires you to file Form 1099-NEC for each person in the course of your business to whom you have paid at least $600 during the year in: 

• Services performed by someone who is not your employee (including parts and materials)
• Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
• Payments of legal fees to an attorney

In general, you don’t have to issue 1099-NEC forms to C Corporations and S Corporations. But there are some exceptions, including legal, medical, and health care payments. 

How do I file Form 1099-NEC?

Form 1099-NEC can be filed online or by mail. A version of the form is downloadable and a fillable online PDF format is available on the IRS website. You can complete the form using IRS Free File or a tax filing software. 

In Box 1 of Form 1099-NEC, you will enter the individual’s non-employee compensation (NEC) of $600 or more. This includes fees, commissions, and prizes and awards for services they performed as a non-employee. A sample version of the form (with sample information filled in) is below.

When do I file Form 1099-NEC?

You are required to file Form 1099-NEC on or before January 31, 2022, using either paper or electronic filing procedures.

When do I Use Form 1099-NEC vs. Form 1099-MISC?

Now that Form 1099-NEC has been reintroduced, business owners need to understand its distinction from Form 1099-MISC. 

Essentially, Form 1099-NEC is now used for reporting non-employee compensation for services, whereas Form 1099-MISC is now used for reporting “miscellaneous information” such as royalties, rents, and prizes and awards that are not for services performed.

It’s worth noting that while payments to an attorney go in Form 1099-NEC, there are some instances in which payments to an attorney are reported in box 10 of Form 1099-MISC. The IRS provides clear instructions for filing both Forms 1099-MISC and Form 1099-NEC that address payment to attorneys and other considerations. 

Form 1099-NEC and Form 1099-MISC are just two of the multiple tax forms you may need to file to make sure you’re compliant.

If you pay your independent contractors through Square’s online payroll service, however, Form 1099-NEC will be generated, filed, and mailed to the mailing address provided for each of your contractors at year-end, enabling you to focus on your business instead of worrying about tax filing guidelines.

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