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IRS Form 1099 NEC 2021- What payments are reported?

IRS Form 1099 NEC 2021- What payments are reported? Did you make direct sales of consumer products on resale? If yes, then you need to report it on the 1099 information return form. Which 1099 Form is used to report direct sales? Previously Form 1099 MISC box 7 was used to report direct sales of consumer products. But from 2021, you can use 1099 NEC box 2 to report the direct sales.

Confusing? If so, we will let you know about what payments are reported in IRS 1099 NEC Tax Form from 2021. We have provided the information about the payments reported on the 1099 NEC boxes. Know what payments you report on the 1099 NEC Form before filing & avoid unwanted penalties & fines.

irs form 1099 nec 2021

Federal 1099 NEC Box 1

Use Form 1099 NEC box 1 to report:

  • Non-employee compensation made to a payee of at least $600 or more in a calendar year.
  • Amount paid to a contractor are on a course of business or trade.
  • Payments are made to an individual who is not treated as a full-time employee.
  • Compensation is made to an individual, partnerships, estate, in some cases a corporation.

Non-employee compensation includes:

  • Fees, commissions, prizes, and awards for services performed as a non-employee.
  • Oil & gas payments for working interest.
  • Expenses incurred for the use of an entertainment facility.
  • Payments made to vendors for services by federal executive agencies.
  • Corporation payments etc.

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Fillable Form 1099 NEC Box 2

Check box 2 or enter “X” in the check box if the payer made direct sales totaling $5,000 or more of consumer products for resale purposes. Please make sure not to enter a dollar amount in this box 2. In the tax year 2020, 1099 NEC Box 2 was reserved. But from 2021, the payer can use either 1099 NEC Form box 2 or Form 1099 MISC box 7 to report the direct sales. If in case, you are using 1099 NEC to report these sales, then you need to file the tax form with the IRS by January 31st.

1099 NEC Tax Form Box 4

Box 4 of Form 1099 NEC used to report federal income tax withheld under backup withholding rules. As per the IRS norms, the payer must start withholding taxes, when the payee fails to furnish TIN previously. In case, if there are no backup withholding taxes for the payee, you can leave this box empty.

Printable 1099 NEC Box 5-7

Generally, IRS Form 1099 NEC 2021 boxes 5-7 are provided for the user convenience only & need not be completed for the IRS. Use boxes 5, 6, & 7 to report state information. You can use state information boxes to report the payments for up to two states. Besides, use box 5 of the form if you withheld state income tax on this payment. Enter the abbreviated name of the state in box 6 of the form & the payer’s state identification number. The amount is withheld in box 7 of 1099 NEC. Moreover, ensure to provide Copy 1 of 1099 NEC Tax Form to the respective state tax department & Copy 2 to the recipient.

Examples of payments reported on 1099 NEC Form

Given below are some of the example payments report on the 1099 NEC Tax Form:

  • Professional service fees like attorney fees, fees paid to accountants, architects, contractors, etc.
  • Fee-splitting, or referral fees.
  • Compensation paid to an attorney for legal adjudication.
  • Payments are made for parts or material to perform services.
  • Amount paid to a non-employee salesperson.
  • Exchange of services between individuals on the course of their trade.
  • Taxable fringe benefits for non-employees.
  • Director fees.
  • Payments to section 530 workers.

Exempted payments on IRS 1099 NEC

Given below are the payments not reported on IRS Form 1099 NEC 2021:

  • Reimbursements paid to volunteers of non-profit organizations.
  • Deceased employee wages paid in the calendar year after the death.
  • Payments made as rent, royalties, & other income are not subject to self-employment tax.
  • Cost of current life insurance protection payments.
  • Employee wages travel allowances, bonuses, prizes, etc,
  • Cost of group term life insurance paid on behalf of the former employee.

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