As an employer, you know it’s your responsibility to provide documentation to anyone you pay for work or services.
In most cases, you will provide salaried or hourly employees with a W-2 form at the end of the year. Sometimes, though, you need to use Form 1099-NEC.
Are you wondering who gets a 1099 NEC and how to complete it for them? Read for all you need to know about the 1099 NEC form.
What Is the 1099 NEC Form?
The IRS has a variety of 1099 forms. Form 1099-NEC is used to report payments made for non-employment compensation to the IRS.
In 2020, the IRS started requiring that businesses use the 1099-NEC form when compensation or payments were given to:
- Independent contractors
- Freelancers
- Sole proprietors
- Self-employed individuals
This form was redesigned in 2020 to replace the form created in 1982. Before this redesign, the information provided on Form1099-NEC was reported on Form 1099-MISC.
In the years before the redesign, the IRS found that many taxpayers were reporting small earnings but very large withholdings that didn’t match up with the amount of money earned.
Who Fills Out the 1099 NEC?
A business that has hired a nonemployee for work or services is responsible for completing the 1099-NEC if the compensation was $600 or more.
The person who hired the independent contractors, freelancers, sole proprietors, or self-employed individuals needs to complete the form and get it to who they paid by January 31st of the previous tax year.
As an employer, you would issue the IRS Form 1099-NEC to anyone given fees, commissions, prizes, or awards for services completed by independent contractors, including cash payments.
The employer is also responsible for submitting this form to the IRS. This means the person getting the 1099-NEC needs to make sure they report the income to the IRS, or they’ll likely have an audit in the future.
Who Gets a 1099 NEC?
If you provide work or services as a contractor, freelancer, or self-employed worker, you should get a 1099-NEC. You can also generate a form using the 1099-NEC generator.
When you make over the $600 threshold of income, you’re getting that money without any taxes removed because you’re a nonemployee compensation.
The IRS expects contractors and freelancers to pay taxes on that income, so they require the 1099-NEC. They want to know about compensation so they can collect the taxes on the money.
Getting a 1099 NEC Form
If a business issues you Form 1099-NEC, you need to include that information as income when you file your taxes. If you get more than one 1099-NEC, then you total them up.
The total gets entered onto Box 7 Form 1040. It becomes part of your total income. It gets added to learn your gross income before deductions get subtracted to get to your adjusted gross income or your taxable income.
Understanding Form 1099 NEC
You need to know who gets a 1099 NEC and when you should issue one as an employer. You need to file with the IRS, and the person who receives it is responsible for reporting the income.
You should definitely learn more about how to create a 1099-NEC template.
HussaiN is a full-time professional blogger from India. He is passionate about content writing, tech enthusiasts, and computer technologies. Apart from content writing on the internet, he likes reading various tech magazines and several other blogs on the internet. Email ID: arrowtricks.pvt@gmail.com
0 Comments