1099-NEC form: What you need to know and when to use it

Penalties for not filing a 1099-NEC form

Missing the Form 1099-NEC filing deadline can result in fines that increase the later the form is submitted, so meeting the due date is essential to avoid penalties.

The IRS imposes varying penalties for late submissions:

• $60 per form if you file up to 30 days after the due date
• $130 per form if over 30 days late but before Aug 2
• $340 per form after Aug 1 or if you don’t file at all
• $680 per form for intentionally disregarding filing requirements

To avoid these penalties, file your 1099-NEC accurately and on time. If unexpected delays occur, you can request an extension using Form 8809 for additional time.

Stay on top of 1099s

QuickBooks makes it easy to see all your vendors and anyone who needs a 1099 in one place, helping your business stay compliant. You get unlimited 1099 e-filing with printing and mailing at no additional cost, so reporting nonemployee compensation is simpler and less stressful.

What’s the difference between 1099-MISC and 1099-NEC?

Form 1099-MISC and Form 1099-NEC are both used to report nonemployee compensation, but they serve different purposes.

• Form 1099-MISC: Reports payments like rent or prizes that aren't subject to self-employment tax.
• Form 1099-NEC: Reports nonemployee compensation likely subject to self-employment tax. Introduced in 2020, it helps the IRS track income from independent workers more effectively.

Remember: Choose the correct form based on the type of payment you're reporting.

How to know if someone needs a 1099-NEC

Before filing, it’s important to confirm that the person you paid qualifies as an independent contractor instead of an employee. The IRS uses several factors to determine this, mainly focusing on the level of control and independence in the working relationship.

Degree of behavioral control

If you direct how, when, and where the work is done, the person is likely an employee. Contractors, on the other hand, set their own hours and use their own tools or methods.

Level of financial control

Employees are typically paid a set wage or salary, while contractors are paid by the project or by deliverable. Contractors also have unreimbursed expenses and the opportunity to earn profit—or risk loss—based on their performance.

Type of relationship

Written contracts, project-based work, and lack of employee benefits (like health insurance or paid time off) usually signal a contractor relationship. If the person receives ongoing benefits or an indefinite offer of work, they’re likely an employee.

If, after reviewing these factors, the worker qualifies as an independent contractor, you must issue a Form 1099-NEC.

Best practices for 1099-NEC recipients

Understanding the details of Form 1099-NEC can help you handle tricky filing situations with confidence.

Handle an incorrect 1099-NEC right away

If you receive a 1099-NEC in error, contact the sender immediately for a correction. Incorrect forms can cause tax discrepancies that affect both your records and the IRS’s. The payer’s contact details are in the upper left corner of the form.

Act fast if your 1099-NEC doesn’t arrive

If the filing deadline is approaching and you haven’t received your 1099-NEC, reach out to your payer. If they don’t respond, call the IRS and provide your details. 

Even without the form, you can use your own records to report your income and file on time then amend later if needed.

1. Contact your employer or payer directly. Request a copy of the missing form.
2. If you still haven't received it by the tax deadline, call the IRS at 800-829-1040. Be prepared to provide the following information:
3. Your name, address, phone number, Social Security number, and dates of employment.
4. Your employer's or payer's name, address, and phone number.
5. The IRS will contact your employer or payer to request the missing form.
6. If you can't obtain the form by the tax deadline, you'll need to rely on your own records to ensure you report all your earnings as an independent contractor

Report both W-2 and 1099-NEC income accurately

Receiving both a W-2 and a 1099-NEC means you earned income as both an employee and a contractor. Report wages from your W-2 and self-employment income from your 1099-NEC. 

Don’t forget to calculate self-employment tax on your contractor earnings, and include forms like Schedule C for business income and expenses.

To file your taxes with both a W-2 and a 1099-NEC, you'll need to:

1. Report your W-2 income: This includes your wages, tips, and other compensation from your employer.
2. Report your 1099-NEC income: This includes your earnings from self-employment activities, such as freelance work.
3. Calculate self-employment tax: You'll need to pay both the employer and employee portions of Social Security and Medicare taxes on your self-employment income. You can use a self-employment tax calculator for this step.
4. Include all additional forms: This may include Schedule C to report your self-employment income and expenses.

Pay taxes on 1099-NEC income throughout the year

Because no taxes are withheld from 1099-NEC payments, you’re responsible for paying income and self-employment taxes yourself. Setting aside money for quarterly estimated payments helps you avoid surprises during tax season.

Find peace of mind come tax time

To streamline your tax preparation, especially when dealing with 1099-NEC income and calculating tax deductions, consider using accounting software with integrated payroll functions.

These tools can automate many tasks, saving you time and reducing the risk of errors. By automating calculations like self-employment tax and generating tax forms, you can focus on growing your business and enjoy a less stressful tax season.