How to Fill Form 1099-NEC?
There are 10 parts to the Form 1099-NEC that you need to provide details for:
- Payer's information
- Recipient's information
- Nonemployee compensation amount
- Federal income tax withheld
- Account number (if applicable)
- FATCA filing requirement (if applicable)
- 2nd TIN not (if applicable)
- State tax withheld (if applicable)
- State/Payer’s state no. (if applicable)
- State income(if applicable)
You may also need to indicate if you are filing a ‘corrected’ or a ‘void’ return on top of the form.
Who is a ‘payer’?
While filling form 1099-NEC, ‘Payer’ is the legal business name you registered for your business. You need to enter your registered business name under ‘Payer’s name’ along with street address, city/town, state/province, country, ZIP or foreign postal code, and business telephone number.
What is a TIN?
A Taxpayer Identification Number or TIN is used by the Internal Revenue Service (IRS) in the administration of tax laws. It must be furnished on returns, statements, and other tax related documents submitted to the IRS.
You need to include the TIN of your business as well as the recipient’s TIN while filling out your form 1099-NEC.
- Enter the recipient's TIN using hyphens in the proper format.
- SSNs, ITINs, and ATINs should be in the XXX-XX-XXXX format.
- EINs should be in the XX-XXXXXXX format.
Where to find TIN?
The Taxpayer Identification Number (TIN) may be found on a number of documents, including tax returns and forms filed with the IRS, and in the case of an SSN, on a social security card issued by the Social Security Administration.
Who is a recipient?
Recipient is the contractor or nonemployee to whom you paid a compensation to. Compensations include his/her service fee as well as fee paid for renting his/her equipment or materials for business use.
You need to fill up all the details pertaining to the recipient’s identity such as his/name, Street address (including apartment number), city/town, state/province, country, and ZIP or foreign postal code.
What is the ‘FATCA’ checkbox used for?
FACTA stands for Foreign Account Tax Compliance Act. It is a tax law that requires U.S. citizens at home and abroad to file annual reports on any foreign account holdings.
On form 1099-NEC, you need to check the ‘FATCA filing requirement’ box to indicate that you’re reporting payments subject to the Foreign Account Tax Compliance Act (if applicable).
What is ‘2nd TIN not:’?
You can check the ‘2nd TIN not:’ to indicate that the IRS notified you twice within three years that the payee provided an incorrect TIN. If you mark this box, the IRS will not send you any further notices about this account.
What is ‘Nonemployee compensation’?
Nonemployee compensation (NEC) Includes service fees, commissions, prizes, awards and any other forms of compensation paid to an individual who is not your employee. It also includes expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee.
You need to declare the nonemployee compensation (NEC) in form 1099-NEC if the amount paid is $600 or more.
What is ‘Federal income tax withheld’?
Withholding is the portion of a nonemployee's wage that is not included in his or her paycheck but is instead remitted directly to the federal, state, or local tax authorities. You can report the withholding in the ‘Federal income tax withheld’ box while filling your Form 1099-NEC.
What is the ‘Account Number’ box on form 1099-NEC?
The account number is a code that’s unique to the recipient and the form. If you’re filing multiple forms for a single person, you are required to include a unique account number on each form so that the IRS can match the forms, if you file a correction.
The IRS encourages you to include an account number on any 1099 form you file. They’ll include this number on any future notices that they will send you. When they do, you’ll be able to verify which recipient the notification is associated with.
This is particularly important if the IRS sends you a notification to begin backup withholding. In such cases, you’ll be able to ensure you’re withholding taxes from the right person.
What is the ‘State Information’ on Boxes 5–7 of form 1099-NEC?
Boxes 5- 7 are provided for the user’s convenience only and need not be completed for the IRS. you can use the state information boxes to report payments for up to two states.
- Keep the information for each state separated by the dash line.
- If you withheld state income tax on this payment, you may enter it in box 5.
- In box 6, enter the abbreviated name of the state and the payer's state identification number.
- In box 7, you may enter the amount of the state payment.
If a state tax department requires that you send them a paper copy of this form, use Copy 1 to provide information to the state tax department and give Copy 2 to the recipient for use in filing the recipient's state income tax return.
What is the use of ‘VOID’ checkbox on Form 1099-NEC?
A checked VOID box alerts IRS scanning equipment to ignore the form and proceed to the next one. You can check the “VOID” box if you provided incorrect details on a completed or partially completed Form 1099-NEC.
For example, if you make an error while typing or printing a form, you can void it. The return will then be disregarded during processing by the IRS. After checking the ‘Void’ box, you can proceed to the next page or to another page and enter the correct information.
- Do not mark the “CORRECTED” box on the page where you entered the correct details
- Do not cut or separate the forms that are 2 or 3 to a page
- Submit the entire page even if only one of the forms on the page is correct
What is the use of ‘CORRECTED’ checkbox on form 1099-NEC?
You can check the “Corrected” checkbox only when correcting a form previously filed with the IRS or furnished to the recipient. Certain errors require two returns to make the correction, such as:
- Incorrect money amount(s), code, or checkbox
- No payee TIN (SSN, EIN, QI-EIN, or ITIN)
- Incorrect payee TIN or Incorrect payee name
- Original return filed using wrong type of return (filing 1099-MISC instead of 1099-NEC)
Who must fill Form 1099-NEC?
If you are an employer, you must file Form 1099-NEC (Nonemployee Compensation) if you have made a business payment of at least $600 to nonemployees during the course of the tax year.
- Services performed by someone who is not your employee (including charges paid for renting or use of parts, materials, and equipment)
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
- Payments to an attorney
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax regardless of the payment amount.
If you filed a 1099-MISC when you needed to submit a 1099-NEC:
First, void the original Form 1099-MISC. To do this, fill out a new Form 1099-MISC and enter an X in the CORRECTED box at the top of the form. Enter all the information exactly as it appeared on the original incorrect form, but enter 0 (zero) for all money amounts.
Common mistakes to avoid while filling form 1099-NEC
As Form 1099-NEC is a newly introduced form, users could easily make mistakes while filling out the details. Some common mistakes you can watch out for includes:
- Filling details in Form 1099-Misc instead of Form 1099-NEC
- Not stating all the compensations
- Failing to include decimal and cents on amounts
- Failing to use black ink (making entries too light)
- Not ensuring proper-record keeping
- Miscalculating the expenses
- Reporting same expenses more than once
- Not sending Copy B of the form to independent contractor(s)
- Not filing the completed form on time
Filling form 1099-NEC: Do’s and Don’ts
Verify if the recipient’s taxpayer ID is correct
Don’t use Form 1099-NEC to report personal payments
Collect Form W-9 from each recipient with the current taxpayer ID before completing Form 1099-NEC
Don’t use Form 1099-NEC to report employee wages; use Form W-2 instead.
Distribute form copies to recipients by January 31. (For 2021, the date is Feb 1st since Jan 31st falls on a Sunday).
Don’t report gross proceeds to an attorney (not fees) on Form 1099-NEC; use Form 1099-MISC instead.
You must file form 1099 within the specified due date to avoid penalty.
Don’t use Form 1099-NEC to report payments of rent to real estate agents or property managers; use Form 1099-MISC instead.
As the Form 1099-NEC filing season closes in, it helps to familiarize yourself with the rules and formalities of this newly introduced form. Keep all the details at your disposal so that you can avoid headaches later and have an easy form filing experience.