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How to File 1099-NECs for Contractors: A Step-by-Step Guide and Compliance Overview

Learn how to file 1099-NECs for contractors with our step-by-step guide. From identifying who to file for to compliance best practices, we've got you covered. Stay informed, avoid penalties, and ensure seamless tax compliance. Explore essential insights for smooth non-employee compensation reporting. Dive in now!

Rajeev Behera
Accounting & Tax
February 15, 2024

How to file 1099-NECs for contractors

Step-by-Step Guide to Filing 1099-NEC:

Step 1. Identify Who you Need to File a 1099 For

Task Owner: Customer (You)

In general, you have file 1099s for vendors that are NOT Corporations (LLC, Sole Proprietor, Individual, Lawyer, or Landlords).

Identify payments sent to the following vendor types, where the total payments are $600 or more for the prior year via ACH, Wire or Check. You do not have to submit 1099s if you paid by card or mobile wallet like PayPal):

  • Non-employees: individuals, freelancers, or independent contractors
  • Rent: landlords
  • Partnership LLCs: like many agencies
  • Some Corporations: in general you don't file 1099s for Corporations unless they perform legal services. So make sure to ask your law firm for one, even if they are a Corporation.

(Exclude payments for merchandise and other non-service related expenses.)

Step 2. Send Blank W-9 Forms to Gather Information:

Task Owner: Customer (You)

  • Distribute W-9 forms to collect names, addresses, and Taxpayer Identification Numbers.
  • Ensure you receive completed W-9 forms by the Jan 15th and send to every.io.

Step 3. Fill Out and Send 1099-NEC Forms:

Task Owner: Every.io (Us)

  • Use information from W-9s to complete 1099-NEC forms.    
  • Distribute forms to the IRS, the payee, and keep a copy for your records by January 31st.

More Information about 1099-NEC filings:

What is it used for?

  • The 1099-NEC form is used to report non-employee compensation.
  • Separates nonemployee payment reporting from the 1099-MISC.

Entities Requiring 1099-NEC Filing:

  • File for individuals or sole proprietors, partnerships, and in some cases, corporations receiving $600 or more for services.
  • Do not file for corporations, except for legal services.

Thresholds and Exceptions:

  • The filing threshold is a total payment of $600 or more in a tax year.
  • Exceptions include payments for merchandise, freight, and similar items.

Penalties for Non-Compliance:

  • Penalties range from $50 to $280 per form, depending on the delay.
  • Intentional disregard can lead to higher penalties.

Best Practices for Compliance:

  • Maintain accurate payment records.
  • Be aware of deadlines and consider electronic filing.
  • Seek professional advice for complex situations.

Conclusion: Staying informed and diligent in filing 1099-NEC forms is essential for any business. Understanding who to file for and adhering to deadlines can prevent costly penalties and ensure compliance.

Legal note: This concise guide provides a clear overview of 1099-NEC filing requirements, aiming to help businesses understand and meet their tax obligations efficiently. For specific cases or changes in regulations, consulting a tax professional or referring to the latest IRS guidelines is recommended.

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