Once you’ve determined who your independent contractors are and you feel confident your books are in order, it’s time to file 1099-NECs. We’ll walk you through this step by step so you can ensure proper taxation.
Step 1: Understand the 1099 form
Businesses must provide a 1099-NEC to each contractor who is paid $600 or more in a calendar year. Independent contractors must include all payments on a tax return, including payments that total less than $600. Note also that nonemployee compensation includes payments to individuals and partnerships.
A number of payments do not require a 1099-NEC, including:
- Payments to a corporation, including a limited liability company that is treated as a C corporation or an S corporation for tax purposes.
- Business travel allowances paid to employees.
- Payments for merchandise, freight, or storage.
Payments through third-party networks—including credit card payments—are reported on Form 1099-K. If, for example, a business pays an independent contractor through PayPal, the contractor may receive a Form 1099-K from PayPal for those direct sales. Issuing a 1099-K depends on the number of transactions and the total dollar amount paid.
Use accounting software to fill out a Form 1099-NEC for each contractor and consult with a certified public accountant (CPA) regarding the 1099 forms your business must provide.
QuickBooks offers 1099 e-filing services with QuickBooks Payroll1 and QuickBooks Contractor Payments. When you use QuickBooks Payroll or Contractor Payments, Your 1099s will be automatically generated and e-filed for you, saving your time and helping you prepare for tax season. You can file unlimited 1099s, including 1099-NEC and 1099-MISC2.
Step 2: Gather all necessary information
Make sure you have all necessary documents for each independent contractor you employ. Each independent contractor should have filled out a W-9 prior to providing any services. These provide you with the following information useful to filling out 1099s:
- Post the nonemployee compensation to Box 1 on Form 1099-NEC and list your company’s taxpayer identification number (TIN) as Payer’s TIN. You’ll also list your firm’s name and address in the top left section of the form.
- List the Recipient’s TIN, name, and address.
- Record any federal and state income tax withholdings, if applicable.
Finally, you’ll see a section to report state income earned and your company’s state tax identification number. The IRS does not require this information, but many businesses include it to make state income tax filings easier for the contractor.
Step 3: Submit the 1099 form
When you produce a 1099-NEC, you provide copies of the form to different recipients:
- Submit Copy A to the IRS with Form 1096, which reports all 1099 forms issued to contractors, and the total dollar amount of payments.
- Send Copy 1 to your state’s department of revenue.
- Provide Copy B to the recipient (the contractor).
- Keep Copy C for your records; this documents the wage expense that you post on your business tax return.
The due date for producing 1099-NEC forms is on or before the first of February. You must provide a Form 1099-NEC to each contractor and to the IRS by that date. Many businesses e-file, and e-filing makes it easier to meet the filing deadline.