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1099-NEC form.

Are you a business owner who works with independent contractors, or a freelancer renting office space or equipment? Maybe you’re wondering whether you need to fill the 1099-NEC tax form. Read on for more about when Form 1099 NEC must be used, deadlines and how to file. And give your business a boost by getting paid into the Wise multi-currency business account.

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Generally you’ll need to complete the 1099-NEC form for any non-employee third party your business paid $600 or more over the course of the tax year. The payer will complete 1099-NEC, and then submit copies to the recipient of the payment, the IRS and relevant state agencies.

Find the official IRS 1099-NEC form template here to download

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Wise doesn’t offer legal or tax advice. Take professional advice if you’re unsure of your tax obligations, and to make sure that the information you report to the IRS is accurate.
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What is a 1099-NEC form?

The 1099-NEC form is used to report non-employee compensation. Form 1099 NEC had stopped being used, but was brought back in 2020 to replace 1099-MISC in many situations, and make the filing process and deadlines for non-employee compensation more straightforward.

Non-employee compensation payments may include:

  • Fees, commissions and other income
  • Prizes and awards
  • Royalties
  • Rent for office space or equipment
  • Fishing boat proceeds
  • Other payments made by your business to third parties that are not your employees

Who Should File Form 1099-NEC?

If you’re a business owner making payments to non-employees - like freelancers or contractors - you’ll probably need to complete Form 1099-NEC for each third party you paid $600 or more over the course of the year.

Freelancers, contractors and small businesses getting paid by other companies are also likely to receive copies of these 1099-NEC forms for their own records and tax reporting.

Basically anyone who makes over $600 from a business client in a year without being a full-time W-2 employee or working through a temp agency is likely to receive a 1099-NEC.

Generally, payers need to file these forms and also issue copies to the recipients of any reported payments by January 31. Payers have no automatic 30-day extensions to the filing deadline unless there are specific grounds for the delay, and e-filing is recommended for convenience and speed.
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What is nonemployee compensation?

So what constitutes non-employee compensation from an IRS perspective?

Non-employee compensation covers a pretty broad range of payment types, including fees, commissions, royalties, prizes, some types of rental and more.

If your payment falls into one of these categories, you’ll usually need to use 1099-NEC when it meets the following criteria:

  • Payment is made to someone who is not your employee or employed through a temp agency
  • Payment is made on behalf of your business
  • Payment is made to an individual, partnership, estate, or in some cases a corporation
  • Payment over the year adds up to $600 or more (royalties are reported from as little as $10)

If you’ve withheld any federal income tax on behalf of the recipient you’ll need to file Form 1099-NEC even if the payment value doesn’t meet the normal $600 threshold.
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What are the different copies of Form 1099-NEC?

As we’ve covered, the 1099-NEC form is important for the business owner as the payer of the money - but also for the recipient’s own records and tax filing. That means you’ll need to complete and pass on multiple copies of 1099-NEC:

As the business owner you’ll need:
  • 1 copy for your own records
  • 1 copy for the IRS
  • 1 copy for filing with state agencies (if needed)
You must also provide the recipient of the payment (or payments) with 2 copies:
  • 1 copy for the recipient’s own records
  • copy for the recipient to file as part of their state income tax return

Learn more and get the full 1099 NEC instructions on the IRS desktop site - or take professional advice if you need help with a specific query.

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