Back 
We’ve paired this article with Laurie Hatten-Boyd’s AP Tax Compliance webinar. Get your Executive Summary to find out how FATCA requirements impact organizations with a global supplier base.
Payers of Nonemployee Compensation of $600+ in services to independent contractors and self-employed small business owners related to a trade or business complete IRS Form 1099-NEC to report payments. IRS 1099-NEC also reports certain attorney fees but not an attorney’s gross proceeds from litigation, which is reported on Form 1099-MISC. Complete 1099-NEC also to report backup withholding of federal income tax in Box 4. The 1099-NEC lets you check a box for direct sales of $5,000 or more of consumer goods to a recipient for resale (Box 2) that aren’t reported instead on 1099-MISC.
Form 1099-NEC is a form issued by the IRS beginning with the tax year 2020. In a prior year, non-employee compensation was reported on Form 1099-MISC. IRS Form 1099-MISC was redesigned to remove non-employee compensation but is still used to report other Miscellaneous Information, certain miscellaneous income payments, and any backup withholding of federal income tax. Read about the differences between 1099-NEC vs. 1099-MISC.
This article isn’t intended to give you tax or legal advice. Consult your CPA or attorney and read Form 1099-NEC instructions, including filing requirements, on the Internal Revenue Service website at irs.gov.
IRS Form 1099-NEC for Reporting Prior Calendar Year Nonemployee Compensation
A 1099 sample screenshot of IRS Form 1099-NEC (Copy A for the IRS) – an information-only version, is shown below to help you understand the 1099-NEC instructions:
The Form no. 1099-NEC example (of a blank 1099-NEC form) on a scannable and printable 1099-NEC form or in electronic filing format is used to report Nonemployee Compensation payments made by businesses in the prior calendar year. For example, if you are completing Form 1099-NEC in January 2025, you will indicate the form is “For calendar year” 2024.
The 1099 form is a combined federal/state information return, with federal and state (if applicable) copies also furnished to the recipient payee.
The 1099-NEC information return for the calendar year 2024 has a 2025 due date. Payers must file Form 1099-NEC by January 31, 2025, whether filing electronically or on paper, and also furnish copies to recipients by January 31st.
What Does Non-employee Compensation Mean?
Non-employee compensation is amounts paid to independent contractor service providers by a trade or business. These self-employed workers do not have to complete a W-2 form because they are not employees, but they must submit a W-9 or W-8 form to payers when their compensation is at least $600 in a calendar year.
For 1099-NEC meaning in context, payers issue a 1099-NEC form titled Nonemployee Compensation to each payee that isn’t an employee and submit 1099-NEC forms to the IRS and applicable states to report Nonemployee Compensation over $600 in a calendar year.
Self-employed workers and other applicable recipients receive the 1099 self-employed form, 1099-NEC. Each recipient receives a copy of 1099-NEC to complete their income tax return. In contrast, no 1099-NEC is prepared for W-2 employees.
Some self-employed workers may receive Form 1099-K (Payment Card and ThirdParty Network Transactions) in addition to Form 1099-NEC if they have received payments that represent revenues above the calendar-year threshold through a payment card or third-party payment network, like PayPal or eBay.
Valid 1099-k revenues must be reported on a recipient’s income tax return as a component of their income for tax payments. Notify the issuer if a Form 1099-K received is erroneous to enable them to correct it.
What is a Payer’s TIN?
A payer’s (or payee’s) TIN is a taxpayer identification number used on tax returns and for other government or banking purposes. A payers TIN is usually an employer identification number (EIN) if the payer is a business. The payer uses its TIN and the recipient’s TIN when preparing IRS 1099 forms as information returns, such as 1099-NEC and 1099-MISC.
Recipients TIN meaning is often the same as payee’s TIN on a 1099-form.
Form 1099-NEC Information Not Included in Numbered Boxes
Form 1099-NEC requires the payer’s and recipient’s name, contact information, taxpayer identification number (TIN), and an account number. The payer assigns an account number to identify the recipient in their system uniquely.
The IRS issues some TINs like an employer identification number (EIN) and individual taxpayer identification number (ITIN) for certain resident aliens without a Social Security number receiving Form 1099-NEC (and nonresident aliens) without a Social Security number after they submit Form W-7. The Social Security Administration issues the social security number (SSN) used as a TIN by an individual U.S. citizen.
For security purposes, the 1099-NEC filer may present only the last digit of the TIN except on the IRS copy, which includes all TIN digits.
Form 1099-NEC includes four checkboxes. If a Form 1099-NEC is Void or Corrected, check the applicable box at the top of the form. Check the appropriate box if the 2nd TIN Notice applies. In Box 2, you will check the box if “Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale.”
The “2nd TIN not.” box may be checked when the IRS sent the filer notice twice in the last three calendar years that the payee used an incorrect TIN.
But don’t check the 2nd TIN Notice box if you received the two notices from the IRS in the same year or if you received notices in different years for information tax returns for the same year. When you check the box, the IRS will stop sending you notices about the payee’s account.
Filers are assessed per-form penalties by the IRS for a missing or incorrect TIN (or missing name). But they may be able to reverse the penalties by promptly notifying the IRS of a good reason that’s not willful neglect and correcting the form(s).
Form 1099-NEC Information in Numbered Boxes
The numbered Form 1099-NEC boxes are:
- Nonemployee compensation
- Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale
- Not used
- Federal income tax withheld
- State tax withheld
- State/Payer’s state no. (number)
- State income
Form 1099-NEC Box 1 – Nonemployee compensation
Report nonemployee compensation of $600 for services (including any parts and materials) or more in Box 1 of Form 1099-NEC. Also, report certain attorney fees, other professional services fees, expert witness fees, and other types of items specified in the IRS instructions.
Payments in Box 1 are generally subject to self-employment tax to be paid by the recipient to the IRS.
Form 1099-NEC Box 2 – Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale
Check the X in Box 2 to indicate that the payer filing Form 1099-NEC made these direct sale payments of at least $5,000. Don’t include the payment amount. For this item, you can choose to use Form 1099-MISC instead of this box on Form 1099-NEC.
Form 1099-NEC Box 4 – Federal income tax withheld
In Box 4 of Form 1099-NEC, report any amount of federal income tax withheld under the backup withholding rules for any payment amount.
Form 1099-NEC Box 5 – State tax withheld
Enter state income tax withheld in Box 5.
Form 1099-NEC Box 6 – State/Payer’s state no. (number)
“In box 6, State/Payer’s state no 1099-NEC, enter the abbreviated name of the state and the payer’s state identification number. The state number is the payer’s identification number assigned by the individual state” for state filing.
Form 1099 Box 7 – State income
Enter state payment in box 7 on Form 1099-NEC.
How can your business streamline nonemployee tax compliance processes?
Discover how to simplify corporate tax compliance year-round with automation, including IRS nonemployee compensation reporting.
Form 1099-NEC FAQs
How Do You Use IRS Form W-9 to Complete Form 1099-NEC?
A payee submits Form W-9 (not Form W-2 used for employees) to the payer for preparing Form 1099-NEC to report nonemployee compensation. The payee is a U.S. person taxpayer using the 1099 information to prepare their income tax return for federal income tax and state tax forms, if applicable, and calculate and pay self-employment taxes.
The payee can find a fillable empty W9 form on the IRS website, enter W-9 data into an online third-party software form for independent contractor or supplier onboarding, or use any blank paper W-9 form and possibly save it as a PDF file to send it to the payer that will issue form 1099-NEC when required by the filing deadline.
What is Considered a Trade or Business for Form 1099-NEC Reporting?
Businesses that operate intending to make gains or profits are considered a trade or business. Trade or business also includes nonprofit organizations and other organizations specified by the IRS Instructions for Form 1099-NEC. Filers shouldn’t include personal payments on Form 1099-NEC.
According to the IRS Form 1099-NEC instructions:
“Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or 501(d), farmers’ cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable.”
What are IRS Exceptions for Reporting Payments on Form 1099-NEC?
The IRS general Instructions for Form 1099-NEC provide the following exceptions for reporting payments on Form 1099-NEC:
“Payments for which a Form 1099-NEC is not required include all of the following.
• Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). However, see Reportable payments to corporations, later.
Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). However, see Reportable payments to corporations, later.
• Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
• Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations sections 1.6041-3(d), 1.6041-1(e)(5), Example 5, and the instructions for box 1.
• Wages, any bonuses, prizes, and awards paid to employees (report on Form W-2, Wage and Tax Statement).
• Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services (report on Form W-2).
• Business travel allowances paid to employees (may be reportable on Form W-2).
• Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.).
• Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, Coverdell ESAs, and ABLE (529A) accounts), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government.
• Payments made to or for homeowners from the HFA Hardest Hit Fund or similar state program (report on Form 1098-MA).
• Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor’s benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.
• Compensation for wrongful incarceration for any criminal offense for which there was a conviction under federal or state law. See section 139F, Certain amounts received by wrongfully incarcerated individuals.”
Difficulty-of-care payments are excludable from the recipient’s gross income unless amounts are paid for more than ten children under age 19 or more than five other individuals under age 19. Other exceptions may apply related to Medicaid, which is classified as difficulty-of-care payments.
What if 1099-NEC but not self-employed?
Sometimes, a 1099-NEC is prepared for recipients who are not self-employed. If you received a self-employed worker Form 1099-NEC for Nonemployee Compensation, determine if you should be receiving it. Read the IRS Instructions for Form 1099-NEC and contact the Form 1099-NEC issuer to ask why the 1099-NEC was issued and submitted to the IRS.
The payer may not know how to fill out a 1099 form for self-employment workers or misclassify the recipient as self-employed.
If issuing a 1099-NEC is an error, ask the issuer to make a correction to prevent the IRS from flagging your tax return when you don’t report income associated with the 1099-NEC. Perhaps the 1099 is reportable as a 1099-MISC instead, and the income should be reported on your tax return.
How Do Payers Distribute and Submit IRS Form 1099-NEC?
Payers send a copy of the completed 1099 information returns to the payee recipient, the IRS, and states with income tax.
Payers with 10 or more information returns of all types for the calendar year need to use electronic filing (1099-NEC online filing) for their batch of forms through eFiling. A payer not meeting the threshold of less than 10 information returns still has filing options of either paper or electronic filing. (The IRS still prefers and encourages E-filing for these less-than-threshold 1099-NEC filers).
Paper-filer payers batch all paper 1099-NEC returns completed using transmittal form 1096 when they file form 1099-NEC with the IRS. Form 1096 is titled Annual Summary and Transmittal of U.S. Information Returns. Refer to the IRS forms 1096 Instructions for how to fill out form 1096 only when transmitting paper 1099 batches to the Internal Revenue Service.
Payers submit a 1099-NEC printable form with Copy A that is red and scannable or an eFiled Copy A of form 1099-NEC to the IRS. The payer retains 1099-NEC Copy C for their records. Each recipient of Form 1099-NEC receives Copy B to use for preparing their income tax return and Copy 2 that they can file with their state income tax return if income taxes are applicable for that state. The recipient payee retains Copy B for their records.
Efiling vs. scannable paper 1099 forms
Effective in 2024, for reporting 2023 calendar year payments, the IRS and Treasury Department have changed eFiling vs. paper filing requirements for 1099 forms. With this change, if a threshold of 10 or more 1099 forms are being filed (counting all types of information returns), instead of 250 1099 forms as a threshold, eFiling is required instead of paper 1099 form filing. The IRS has a new portal for eFiling. Use e-filing (electronic filing) Form 1099-NEC when required to avoid penalties.
Your tax software may have a feature for completing form 1099s for electronic or paper filing. If you are eligible and choose to use printable 1099-NEC forms, order scannable official forms online (with red IRS copy A) for 1099-NEC from the IRS website. The IRS offers a reasonable quantity of these ordered official IRS-scannable paper forms as a free 1099-NEC form (and other needed form numbers)
Downloading 1099 forms from the IRS website (including a 1099-NEC form download) for filing with the IRS isn’t allowed because they’re not scannable. The IRS can impose a penalty on payers for filing non-scannable 1099s.
What Should a Recipient Do if the Information on Form 1099-NEC is Incorrect?
The recipient should request a corrected Form 1099-NEC from the payer filing the Form 1099-NEC. If the payer doesn’t issue a corrected form, the recipient should use the correct information and attach a note of explanation when submitting the tax return(s).
Summary
Payers like your business fill out Form 1099-NEC for Nonemployee Compensation using the W-9 or W-8 Forms submitted by payees for tax compliance. It’s important to track independent contractor payments and other payments requiring reporting on IRS Form 1099-NEC. Discover related content about global supplier tax compliance rules.
