Form 1099-NEC – Nonemployee Compensation. Fill out 1099-NEC to report compensation paid to a nonemployee such as an independent contractor. Even though Form 1099-MISC is also there to use for this purpose, you can keep an organized record of tax documents by opting to fill out Form 1099-NEC instead of 1099-MISC.
If you’re not filing Forms 1099-MISC at all, simply filing Form 1099-NEC to report nonemployee compensation is going to be a lot easier. The same as the 1099-MISC though, you must report nonemployee compensation paid if the payments made during the course of the tax year is $600 or more. You may want to consider filing Form 1099-NEC to report payments made to freelancers and independent contractors.
How to fill out Form 1099-NEC?
Form 1099-NEC is a fairly simple tax form that you can file on your own. It is made up of seven boxes. In order, you will report the following on Form 1099-NEC 2021.
Enter your and the recipient’s taxpayer identification number. This can be either a Social Security Number, Individual Taxpayer Identification Number, or Employer Identification Number. Followed by the address, and account number if you have multiple accounts for a recipient you’re filing more than one Form 1099-NEC.
You can now enter money amounts and provide other information.
Enter the total amount paid to the recipient during the tax year on Box 1, Nonemployee Compensation.
If you made direct sales of at least $5,000 of consumer products for resale, check Box 2. The Box 3 can be left blank.
The federal income taxes withheld from the recipient’s income can be reported on Box 4, including the backup withholding. Boxes 4 through 7 is for state income taxes. Enter the amount of state income tax withheld from the recipient’s income if the state taxes income.
Reporting Form 1099-NEC to the IRS
With Form 1099-NEC, same as most other information returns, you must report it to the Internal Revenue Service by filling out Form 1096. Do this for each information return you’re filing and mail it to the Internal Revenue Service or e-file. Fill out 2021 Form 1096 with instructions on-page and report nonemployee compensation.