Understanding the 1099-NEC Form

What is the 1099-NEC?

Form 1099-NEC is a compensation document that reports money paid by a business to a person who isn’t an employee. It was reintroduced in 2020, because for several years, this income was just reported on a 1099-MISC for non-employee compensation reporting. Businesses now are supposed to use the 1099-NEC if they have made payments to you of $2,000 or more.

The 1099-NEC is considered an “informational” return. Meaning you’ll use it as reference, and it will help you complete your tax return with your business income. Most importantly, if you get a 1099-NEC form, you should know that the IRS also gets a copy of this information too, and likely the state tax authorities.

What does the IRS form 1099-NEC look like?

The 1099-NEC form is relatively short document and includes:

• Payer’s information (name, address, and TIN – Taxpayer Identification Number)
• Recipients’ information (name, address, and TIN)
• The total compensation amount paid
• Any taxes that were withheld

You’ll use the amount in Box 1 on the 1099-NEC to report your self-employment income. Instead of putting this information directly on Form 1040, you’ll report it on Schedule C – Profit or Loss from Business, which is filed with Form 1040

What’s the difference between the 1099-NEC and other 1099-forms, like the 1099-MISC and 1099-K?

There are several types of 1099 forms other than the 1099-NEC that apply to specific income situations, the most common are:

• 1099-MISC, still used for other miscellaneous income types such as royalties exceeding $10, payments for prizes and compensation, other awards, or even rent
• 1099-G, for money received from government sources – like unemployment benefits
• 1099-LTC, for receipt of long-term care and accelerated death benefits
• 1099-SA, to report funds dispersed from a medical savings account
• 1099-DIV, for stocks and funds that pay dividends
• 1099-INT, for checking, savings, or other bank accounts that earn interest
• 1099-R, for distributions from pensions, annuities, retirement, or profit-sharing plans and received $10 or more from their retirement account

Who receives a 1099-NEC?

Businesses will issue a 1099-NEC if they paid out at least $2,000 during the calendar year and:

• You’re not their employee (full- or part-time).
• The business made payment for your services or products as non-personal payment.
• You, as a recipient, are an individual, partnership, or estate.

You might also receive a 1099-NEC if you received money, commissions, fees, prizes, or awards for services.

What if I have a 1099-NEC, but I am not self-employed?

If you worked as an employee, you should receive a W-2 rather than a 1099-NEC. Reach out to a Tax Pro or call the IRS hotline for help.

What if you worked for money and did not get a 1099-K or 1099-NEC?

Whether or not you get a 1099, if you performed services or work for compensation, that is considered taxable income and must be reported on your tax return. The IRS doesn't know if you made a profit or had a loss until you report your total income and expenses on Schedule C of your tax return.

If you did NOT receive a 1099, that does not change the taxable nature of the earnings. 1099s do not arrive for a variety of reasons, including changed addresses, the payor did not send you a copy, or it just got lost. If you have income activity, be sure you handle it correctly on your tax return.

What are the deadlines and filing requirements if I receive a 1099-NEC?

All 1099-NECs should be postmarked by January 31, to both the IRS and the recipient.

As a self-employed taxpayer, your taxes generally need to be paid in quarterly estimated taxes rather than once a year during filing season, by April 15. Making estimated quarterly payments will reduce your penalties and allow you to either receive a refund or pay a smaller balance. This means you’ll need to send money to the IRS every quarter to cover the taxes on the money you made that quarter.

If you expect to pay more than $1,000 in taxes for the year, then you likely need to pay quarterly estimated taxes to avoid underpayment penalties. When you file your tax return, if you have not paid enough in taxes either through withholding or quarterly payments, you could be subject to an underpayment penalty. Find an office near you and work with a Jackson Hewitt Tax Pro today to learn more.

About the Author

Mark Steber is Senior Vice President and Chief Tax Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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