How to File 1099-NEC in 2025
As the tax season approaches, learning how to file 1099-NEC might seem like a daunting task for business owners and employers who have paid non-employee compensation during the tax year 2024, but with the right guidance, it can be a straightforward process. This Form 1099-NEC ensures compliance with tax regulations and helps the IRS track income that may not be subject to traditional withholding. In this guide, we’ll walk you through the process of filing Form 1099-NEC, covering key steps and important considerations to ensure accurate and timely filing.
What is Form 1099-NEC
In 2020, the IRS brought about a significant change with the introduction of Form 1099-NEC (Non-Employee Compensation). This new form separated reporting for non-employee compensation from the previously used Form 1099-MISC. Form 1099-NEC is designed specifically for reporting payments made to independent contractors, freelancers, and other service providers who are not classified as employees.
Its sole purpose is to document payments of $600 or more for services rendered within a tax year, streamlining the reporting process and ensuring adherence to tax regulations in the evolving employment landscape.
What is Non-Employee Compensation?
The IRS explains that, in general, you’re required to report payments (referred to as Non-Employee Compensation) that you paid in the tax year 2024 if they satisfy the following quartet of conditions:
- The payment is made to someone who isn’t your employee.
- The payment total is at least $600 for the year.
- The payment is made for services in the course of your trade or business.
- The payment is made to an individual, partnership, estate, or in some cases, a corporation.
Additionally, businesses will need to file Form 1099-NEC if they withheld any federal income tax under the backup withholding rules regardless of the payments made to the non-employee over the year.
Non-employee compensation can include:
- Fees
- Benefits
- Commissions
- Prizes and awards
What Information Is Required to File Form 1099-NEC?
Following is the information required to file Form 1099-NEC:
- Payer Details: Name, TIN, and Address
- Recipient Details: Name, TIN, and Address
- Non-employee compensation amount
- Federal income tax withheld
a. Federal Details: Miscellaneous Incomes and Federal Tax Withheld - State Filing Details: State Income, Payer State Number, and State Tax Withheld
Form 1099-NEC Copies
| Payer Copies | Description | Recipient Copies | Description |
|---|---|---|---|
| Copy A | Should be filed with the IRS | Copy B | Should be furnished to the recipients |
| Copy 1 | To be filed with the state agencies. (Only if required) | Copy 2 | To be given to recipients to file with their state income tax return |
| Copy C | Copy for payers to maintain in the business records |
Parts of Form 1099-NEC
It’s important to note that as of the 2020 tax year, some categories of payments that were previously reported on Form 1099-MISC have been moved to Form 1099-NEC. Form 1099-NEC is specifically designed to report nonemployee compensation, which includes payments made to independent contractors, freelancers, and other service providers who are not considered employees. This form is used to report payments of $600 or more for services provided during the tax year 2024. However, Form 1099-NEC still includes seven boxes for reporting income. Here are some key parts of Form 1099-MISC along with the corresponding descriptions:
| Parts | Category | Description |
|---|---|---|
| Box 1 | Nonemployee compensation | If the amount within this box corresponds to self-employment income, please report it on Schedule C or F (Form 1040) if you operate as a sole proprietor. For individuals involved in partnerships, kindly report it on Form 1065 and Schedule K-1 (Form 1065). Additionally, recipients or partners should ensure the completion of Schedule SE (Form 1040). |
| Box 2 | Payer made direct sales totaling $5,000 or more of consumer products to the recipient for resale | Mark the checkbox labeled “X” in Box 2 if you are reporting sales of $5,000 or greater for reselling consumer products. These sales can involve buy-sell arrangements, deposit-commission structures, or any other basis. Please don’t include the payment amount. You have the option to report this information either in Box 2 of Form 1099-NEC or in Box 7 of Form 1099-MISC. |
| Box 3 | Reserved for future use | Don’t include any information in this box, as the IRS has left Box 3 for future use. |
| Box 4 | Federal income tax withheld | In cases where you have withheld federal income tax from the contractor’s wages, which were subject to backup withholding, it is mandated by the IRS that you withhold 24% of their wages if they do not furnish accurate Taxpayer Identification Number (TIN) details to the payer. |
| Box 5 | State tax withheld | Enter the state tax withholding amount if it is applicable within your state. You have the option to report payments for up to two states. |
| Box 6 | State/Payer’s state no. | If you have entered state tax withholding in Box 5, proceed to enter the abbreviated name of your state and the corresponding state identification number in Box 6. Please ensure that they accurately match the amounts entered in Box 5. For example, CO – Colorado, CA – California. |
| Box 7 | State income | Lastly, enter the amount of the state payment in Box 7. |
PRO TIP: Make sure to enter each payment in the appropriate box since the IRS will use this data to assess whether the receiver reported the payment correctly.How to File 1099-NEC Form?
Step 1: Collect Accurate Information Beforehand
Gather all necessary details of the recipients, including their names, addresses, and Taxpayer Identification Numbers (TINs) or Social Security Numbers (SSNs). Accurate information is crucial for proper reporting.
PRO TIP: Always make the contractors fill out and return W-9 once you engage them for the services for your business.
Step 2: Buy Your 1099-NEC Forms
Purchase the official IRS Form 1099-NEC. You can get these forms from various sources, such as office supply stores or authorized online vendors. Don’t use the forms downloaded from the internet.
PRO TIP: Never use a downloaded PDF format of the 1099 Form from the internet because they are just for sample view and cannot be read and processed by the IRS scanner.
STEP 3: Prepare Your 1099-NEC Forms
Fill out the 1099-NEC forms with accurate information. Ensure each box is accurately completed. Box 1 should reflect the total non-employee compensation paid to the recipient during the tax year.
PRO TIP: In case you have withheld any amount from the contractor (backup withholding), then you need to fill that specific amount in Box 4 concerning any federal or state income tax you withheld.
STEP 4: Send Copy B of 1099-NEC to the Recipients
Provide Copy B of the 1099-NEC forms to your recipients. This copy serves as their record of the income they received and is needed for their tax reporting.
PRO TIP: Never delay sending the forms to independent contractors because the IRS may impose heavy penalties for late distribution if there is no genuine reason.
STEP 5: Submit Copy A of 1099-NEC to the IRS
Copy A of each Form 1099-NEC should be submitted to the IRS through mail or electronically by January 31, 2025.
PRO TIP: NEVER submit downloaded 1099-NEC forms from the internet because they cannot be processed by the IRS scanner. The fine for submitting the unscannable form to the IRS is $50. Ensure you submit the RED Scannable Form always.
STEP 6: Retain Copy C of the 1099-NEC Form
Keep Copy C of the completed 1099-NEC forms for your records. This will be useful for your records of the payments made to non-employee contractors, which may be required for audit purposes or future reference.
1099-NEC Deadlines – 2024/2025
The following are the deadlines for sending 1099-NEC forms to the recipients and for paper or electronic filing with the IRS. Always prepare and file 1099s before the deadline to save from heavy penalties for late submissions from the IRS.
Penalties for Late Filing
The penalties for late filing range from $60 – $310 per missed 1099 tax form, depending on how late the forms were submitted.
| Penalty per Form | Length of Delay |
|---|---|
| $60 | Up to 30 days late |
| $120 | More than 30 days late but before August 1st, 2025 |
| $310 | Filing on or after August 1st, 2025 |
| $630 | Intentionally neglecting to file |
The maximum penalty is a total of $1,261,000* for large businesses and $3,783,000 for small businesses.
PRO TIP: In case you were unable to file 1099-NEC on time, you always have the option to request a 30-day extension by filing IRS Form 8809 (Extension of Time to File Information Returns). You MUST have a valid reason for getting an extension from the IRS. However, this extension does not extend the January 31 deadline for submitting Copy A of 1099-NEC to independent contractors.
For more information regarding deadlines and penalties of various 1099 forms like 1099-NEC, 1099-INT, and more, kindly refer to “1099 Deadlines, Penalties & State Filing Requirements for 2024/2025“.
How to File 1099-NEC with CheckMark 1099 Software
Navigating the process of preparing and submitting 1099-NEC Forms is a daunting task. A minor error can lead to significant consequences. Opting for the CheckMark 1099 Software offers a streamlined solution, transforming 1099 filing into a seamless experience that conserves both time and money.
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