Did you pay an individual $600 in the prior year? Does the individual an employee? If “No”, then you need to issue a 1099 information return. As per the IRS, to report contractor income you must file Form 1099 MISC or 1099 NEC. So, when the contractor performs services related to your business then issue printable Form 1099 NEC. If you made payments related to rent, royalties, etc, and issue 1099 MISC.
Confusing? Don’t worry! We will let you know who needs an IRS 1099 NEC. We also provide you information about what is a 1099 NEC, when required to file. Besides, you’ll also get to know about what happens if you fail to file a 1099 tax return.
Table of Contents
- What is the 1099 NEC Tax Form?
- Am I required to file Form 1099 NEC or 1099 MISC?
- What happens if I don’t file 1099 NEC?
- Do you have to issue a Federal 1099 NEC if you paid with a credit card?
- Will I get audited if I forgot 1099?
What is the IRS Form 1099 NEC Tax?
IRS 1099 NEC used to report compensation paid to non-employees, self-employed individuals, independent contractors, etc. Previously, these payments reported on Form 1099 MISC. But from the 2021 tax year, you must report the non-employee compensation on the new 1099 NEC Tax Form. This means if you made payments to non-employees like prizes or rewards in 2021, then report it on the new Form 1099 NEC in 2021. This new tax form added to the 1099 series in the 2021 tax year to clarify deadline confusion using a single form.
Am I required to file Form 1099 NEC or 1099 MISC?
With the help of the below information, you can determine which 1099 Form to file:
Form 1099 NEC
- Use 1099 NEC to report non-employee compensation made throughout the tax year.
- Report the payments exceeding $600 in a tax period on the tax form.
- Include the payments made for services performed related to business or trade.
- The person whom you pay must be an individual, estate, partnership, but not corporation.
- Report the payment made to law firms for performing legal services like fees etc on 1099 NEC.
1099 MISC Form
- Use 1099 MISC to report miscellaneous income paid to the contractors in a calendar year.
- Payments made throughout the tax period of $600 or more reported on the tax return.
- Include all the miscellaneous income paid to the individuals on the course of business or trade.
- Report the payments made to individuals, estate, partnership on 1099 MISC.
- Include the payments made to the attorney for providing legal information on the course of business on the tax return.
What happens if I don’t file 1099 NEC?
When a business fails to file a 1099 NEC Tax Return within the deadline, the IRS imposes a penalty. The penalty amount depends on when you file 1099 after missing the due date. Besides, the penalty amount high if you intentionally fail to submit tax returns within the key date. Given below the penalty details if you don’t file 1099 NEC:
- $50 per 1099 information if you fail to file within the deadline.
- $110 per form when you fail to submit tax returns within 30 days after the due date and by August 1st.
- $280 per information returns filed after August 1st.
- If you intentionally failed to file a 1099 NEC, then you must pay $550 per 1099 Form to the IRS.
Do you have to issue a Federal 1099 NEC if you paid with a credit card?
No, you are not required to prepare a 1099 NEC or 1099 MISC when you made payments using credit cards, debit cards, stored-value cards, mobile wallets. You must file an IRS 1099 NEC when you made payments using cash, check, or similar payment methods. Besides, the payment settlement entity responsible to report the payments made through credit/debit cards. On the other hand, the individuals who accept payments through payment cards receive a 1099 K Form. As per the IRS norms, “payments made through third-party networks like PayPal, credit/debit cards must be reported on Form 1099 K”. Hence, you must not issue a 1099 NEC if you paid through payment cards.
If I forgot 1099, when do I get audited?
As we know, the payer who fails to file a 1099 information return will subjected to penalties. The contractor who fails to report 1099 income on the tax return gets audited. Because the payer sends 1099 information returns to the contractor and as well as to the IRS. The IRS checks whether the contractors reporting 1099 income with the help of the SSN mentioned on the form. Therefore, you are subjected to a penalty of nearly 25% on the income you have earned.
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