The Internal Revenue Service is the US federal agency responsible for collecting taxes. Form 1099 describes various forms of income that are taxable received by individuals or businesses during the tax year. It lists the amount paid to independent contractors, dividends to shareholders and other distributions, fees and other payments made in lieu of wages, etc.
If you are reading this, you are probably one of the thousands of people who just filed an IRS Form 1099 NEC that reports payments that you made in 2020. Don’t get audited again. Learn what you need to know about the top 20 frequently asked questions about IRS Form 1099-NEC.
1099 NEC Frequently Asked Questions
1. What is the 1099 NEC Tax Form used for?
A: Form 1099 NEC used to report non-employee compensation of $600 or more made to individuals who are not employees. Additionally, use the 1099 NEC Form to report direct sales of consumer products for resale on a deposit-commission basis from 2021.
2. What is the difference between the 1099 MISC Tax Form and the 1099 NEC?
A: IRS 1099 MISC & 1099 NEC are issued to individuals, contractors, etc but differ in a distinct way. Business owners use 1099 NEC to report non-employee compensation such as prizes, awards, etc. 1099 MISC is used to report miscellaneous income such as rents, royalties, prizes, awards, etc.
3. Where to get 1099 NEC Tax Forms?
4. Which states require 1099 NEC Form filing?
A: At the end of the tax year, several states require 1099 NEC filing. Because Form 1099 NEC is the new tax form & not included in the Combined Federal/State filing program. Check your state’s website & file Form 1099 NEC with the state if necessary.
5. Is 1099 NEC Tax Return new?
A: 1099 NEC return is an old form that was revived back in the tax year 2020 to clear the confusion created by dual filing deadlines on 1099 MISC.
6. When is Form 1099 NEC due?
A: As per the IRS norms, Form 1099 NEC is due to the IRS & to the recipient on the same day. Business owners must issue 1099 NEC Form copy A to the IRS & copy B to the recipient by “January 31st”.
7. How to file 1099 NEC Tax Returns electronically?
A: Here are the steps to e-file Form 1099 NEC:
- Sign up with an IRS authorized e-file provider like Form 1099 Online.
- Login with the credentials & choose “Form 1099 NEC” form the e-filing dashboard.
- Fill in the required information i.e., payer details, payee details, non-employee compensation amount
- Review the form & submit it to the IRS with the deadline.
8. Are the 1099 NEC Form required for 2021?
A: It depends on the payments made by the business throughout the tax year. Here is the list of payments that require 1099 NEC Form filing for 2021:
- Prizes or awards, fees, commissions for performing services.
- Direct sales of $5,000 or more of consumer products for resale.
- Other type of commissions on course of business.
- Oil and gas payments for working interest.
- Payments to vendors, corporation for services rendered.
- Fee splitting’s or referral fees.
- Payments for parts or materials etc.
9. Why was 1099 NEC created?
A: IRS 1099 NEC was created to clear the confusion created by dual filing deadlines using a single 1099 MISC. Yes, previously payers used the 1099 MISC Form to report miscellaneous income as well as non-employee compensation.
After the changes in the due dates, payers got confused & faced unwanted penalties. Therefore, the IRS revived back 1099 NEC Tax Form for 2021.
10. Who receives the 1099 NEC Form?
A: According to the IRS guidelines, 1099 NEC is received if:
- Payments made are to an individual who is not treated as an employee.
- Compensation made are for services performed on course of business or trade.
- Non-employee compensation amount exceed $600 in a tax period.
11. Does LLC get a 1099 NEC Tax to return?
A: Yes, LLC’s get a 1099 NEC if taxed as a partnership or single-member disregard entity.
12. Who is exempt from a 1099 NEC?
A: Form 1099 NEC exemptions:
- Expense reimbursements paid to volunteers of non-profit organizations;
- Deceased employee wages.
- Cost of current life insurance protection.
- Employee’s wages, travel or auto allowance, or bonuses and prizes
- Cost of group-term life insurance paid on behalf of a former employee.
13. What happens if I don’t file my 1099 NEC?
A: The IRS imposes heavy and hefty penalties for businesses that fail to file the 1099 NEC Tax Form within the deadline.
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