A 1099-NEC is an information return form that reports nonemployee compensation (i.e., payments to someone other than an employee of your company) and is probably one of the most misunderstood business requirements of the IRS.
Every year when January rolls around, many business owners wonder if they have to send 1099s to their contractors and vendors.
Here is what every small business should know about 1099-NEC reporting:
What is Form 1099-NEC?
The IRS requires businesses to file a 1099-NEC for each person or unincorporated business to whom they have paid at least $600 during the year for services.
Who do you need to send a 1099-NEC to?
If your business paid an individual, LLC, or partnership more than $600 during the year, you have to send them a 1099-NEC.
Below are some examples of who you have to send 1099-NEC’s to:
- Freelance contractors (social media managers, virtual assistants, etc.)
- Professional service advisors (lawyers, accountants, etc.)
- Vendors (IT consultants, caterers, etc.)
Who do you NOT have to send a 1099-NEC to?
You do not have to send a 1099-NEC to any incorporated business (S-Corporations and C-Corporations) or any entity that is taxed as an S-Corporation or C-Corporation.
You’re probably thinking, “umm, how do I know what type of structure my vendor is?!?”.
We STRONGLY recommend that before you pay a vendor, request a W-9 from them which gathers this information! The W-9 contains all the information needed about the vendor to determine if they need to be sent a 1099 and how to prepare the 1099.
You also don’t have to send 1099’s to vendors who you paid via credit card, PayPal Goods & Services, or Venmo Business.
When do you have to send 1099’s?
The deadline for sending 1099-NEC forms to contractors and vendors is January 31st. Businesses must also submit copies of their 1099 forms for each vendor to the IRS.
Need some help? Reach out to us today and we’ll be happy to help.
