The 1099-NEC form is used to report nonemployee compensation. It is used by businesses to report payments made to independent contractors, freelancers, and other self-employed individuals who provided services to the business.
Prior to tax year 2020, nonemployee compensation was reported on Form 1099-MISC. However, starting in tax year 2020, nonemployee compensation is reported on the new Form 1099-NEC.
Businesses that paid $600 or more to a nonemployee for services rendered during the tax year are required to file a 1099-NEC form.
It is important to note that the $600 threshold applies to the total amount paid to the nonemployee during the tax year, not to each individual payment.
The deadline to file a 1099-NEC form is January 31st of the year following the tax year in which the payments were made.
Additionally, businesses must provide a copy of the 1099-NEC form to the nonemployee by January 31st.
The penalties for not filing a 1099-NEC form or for filing an incorrect form can be significant. The penalty amount varies depending on how late the form is filed and whether the failure to file was intentional or not.
For example, if a business fails to file a correct 1099-NEC form by the due date and the failure was not intentional, the penalty can range from $50 to $280 per form, depending on how late the form is filed.