A 1099-NEC is a “non-employee compensation” reporting form submitted to the IRS for federal tax purposes. There are 20 different types of 1099s, but the one used most by small business owners is the 1099-NEC. This is the form you would use if you paid an independent contractor more than $600 in a financial year. In this blog post, we’re going to focus on this specific form by touching on basic need-to-knows.
Who is an independent contractor?
Anyone you hire who is not an employee. They work for you on a contract basis to complete a specific task or project.
Note: if you hire via a third-party service, you may not be required to submit a 1099 for them. These details can vary, so make sure to check out the company’s details on tax filing before using their services.
Who Do I Need to Fill Out a 1099 for?
ANY contractor or partnership who did $600 or more of work for your business during the financial year.
Do Not File 1099s for C Corporations or S Corporations
Sometimes an independent contractor will be registered as a C corporation or S corporation. In these situations, you do not need to file a 1099 for them. You can check to see whether a contractor is incorporated based off the information on their W-9. Make sure you are requesting a W-9 from your contractor as soon as you hire them.
Do Not File 1099s for Employees
The IRS leaves no room for confusion on what classifies an individual as an employee or non-employee. You need to file a W-2 for all employees to report wages, tips, and other compensation you paid them during the year. There are major penalties for misclassifying employees as independent contractors. Make sure you know the difference before submitting a 1099.
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