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Did Your Business Make Payments to Independent Contractors This Year?

In last week’s blog article we covered the important differences between employees and independent contractors when hiring in your business. If after reading last week’s blog article, you’ve determined that your business utilized the work of independent contractors during the year, you must now determine if you’re required to report these payments on Form 1099-NEC.


What is Form 1099-NEC?

Form 1099-NEC is used to report Nonemployee Compensation. As a business owner, you are required to send 1099-NECs to independent contractors you’ve paid over $600 during a calendar year (Jan 1 - Dec 31).


Payments subject to the 1099-NEC filing requirement include fees, commissions, awards, prizes, or other forms of compensation for services an independent contractor performed for your business. Not required to be reported on Form 1099-NEC are payments for physical products or goods. You also do not need to issue a 1099-NEC to a C Corporation or S Corporation unless you were paying for medical or healthcare payments or attorney services. Please keep in mind that there may be other scenarios, as outlined by the IRS, that do not require a 1099-NEC to be filed.


Does my business need to issue a 1099-NEC?

You will need to complete a 1099-NEC for all independent contractors you have paid over $600 during the calendar year. See the section above for the types of payments subject to the 1099-NEC filing.


When is the filing deadline for 1099-NECs? What happens if I miss the deadline or don’t file at all?

The deadline to file 1099-NECs is January 31st. There are fees should you miss this deadline and the penalty varies from $50 to $270 per form. If you willfully decide that you won’t file 1099-NECs at all then you might be looking at a minimum fine of $550 per form.


To avoid unintended penalties be sure that you have a plan in place to file all 1099-NECs well before the January 31st deadline.


How does my business go about filing 1099-NECs?

In order to complete 1099-NECs you will need to have a completed Form W-9 for each independent contractor you’re issuing a 1099-NEC to. As mentioned in last week’s blog article, the best way to go about this is requiring the contractor to complete the Form W-9 before paying them.


Once you have Form W-9 you can complete 1099-NECs. The great news is that businesses have several options when it comes to completing, sending, and filing 1099-NECs:

  • If you’re using a bookkeeping software, such as QuickBooks, they will assist in the preparation, IRS filing, and sending of 1099s to independent contractors.

  • You can utilize an online 1099-NEC filing service, such as tax1099.com.

  • If you’re a real go-getter you can also file 1099-NEC forms directly with the IRS yourself. The IRS utilized the FIREProduction System and you must complete a one-time application (Form 4419) to use this system.


 

If you haven’t already done so, now is a great time to start organizing your books and determining which independent contractors you’ll need to send 1099-NECs to. This is also a perfect reminder as to the importance of bookkeeping and staying organized throughout the year. If you’re able to keep tidy books throughout the year, it’s one less hurdle to jump through at year-end and time back to enjoy the holidays with loved ones, think to the next year and all the goals you have for your business.


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