Here’s what HIVE AI had to say about “What forms do I issue to contractors (1099-NEC)?”:
When issuing forms to independent contractors, you primarily use Form 1099-NEC (Nonemployee Compensation), which replaced the use of Form 1099-MISC for reporting nonemployee compensation starting in tax year 2020.
Form 1099-NEC: The Primary Form for Contractor Payments
Form 1099-NEC is used to report and transmit nonemployee compensation, and it became valid starting in tax year 2020 IRS IRM 2.3.53 Command Code PMFOL . Payments for remuneration of services of $600 or more were reported on Form 1099-MISC with respect to calendar years before 2020, and on Form 1099-NEC in calendar year 2020 and thereafter IRS IRM 4.19.26 Campus Backup Withholding Return Compliance Program Procedures .
When You Must Issue Form 1099-NEC
You must file Form 1099-NEC when you make payments of $600 or more during the tax year for:
Services performed by someone who is not your employee (including parts and materials) (reported in box 1), or payments to an attorney (reported in box 1) IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation . Form 1099-NEC reports nonemployee compensation for payments for remuneration of services of $600 or more (required under IRC 6041A), and attorney’s fees (required under IRC 6041(a) and IRC 6045(f)) IRS IRM 4.19.26 Campus Backup Withholding Return Compliance Program Procedures .
Additionally, you must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation .
Special Reporting Requirements
You must file Form 1099-NEC or Form 1099-MISC to report sales totaling $5,000 or more of consumer products to a person on a buy-sell, a deposit-commission, or other commission basis for resale IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation . If you use Form 1099-NEC to report sales totaling $5,000 or more, then you are required to file Form 1099-NEC with the IRS by January 31 IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation .
Corporate Recipients
Generally, you don’t need to report payments to corporations, but there are important exceptions. The following payments made to corporations must generally be reported on Form 1099-NEC: attorneys’ fees reported in box 1, and payments by a federal executive agency for services (vendors) reported in box 1 IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation .
Filing Deadlines and Requirements
Forms W-2 and W-3 and any returns or statements required by the Secretary to report nonemployee compensation shall be filed on or before January 31 of the year following the calendar year to which such returns relate IRC § 6071(c) . This means Form 1099-NEC must be filed with the IRS by January 31, which is earlier than most other 1099 forms.
Statements to Recipients
If you are required to file Form 1099-NEC, you must furnish a statement to the recipient IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation . This copy must also be provided to the contractor by January 31.
Practical Examples
The tax code provides clear examples of when to use Form 1099-NEC:
If you contract Sean Black to complete custom corn chopping on your farm, because Sean Black is a contracted individual and not an employee, you will issue him a Form 1099-NEC to report the compensation paid for the custom corn chopping services IRS – Publication 225: Farmer’s Tax Guide .
However, it’s important to distinguish this from other types of payments. If you rent a barn from Valerie Brown for the operation of your business, because you pay more than $600 annually for the rental, you will need to issue a Form 1099-MISC to Valerie Brown to report the rent you paid to her IRS – Publication 225: Farmer’s Tax Guide .
Transit Passes and Parking Benefits
There are special rules regarding fringe benefits for independent contractors. Although you cannot provide qualified transportation fringes to independent contractors, the working condition and de minimis fringe rules for transit passes and parking apply to independent contractors. Tokens or farecards that enable an independent contractor to commute on a public transit system (not including privately operated van pools) are excludable from the independent contractor’s gross income and are not reportable on Form 1099-NEC if their value meets certain requirements, but if they exceed those limits, they must be reported on Form 1099-NEC IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation . The value of parking may be excludable from an independent contractor’s gross income, and therefore not reportable on Form 1099-NEC if certain requirements are met IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation .
Compliance Consequences
Proper filing of Form 1099-NEC is crucial for tax compliance. For a taxpayer to consistently treat the worker as an independent contractor on his or her tax returns, the taxpayer must file Forms 1099-MISC as required by sections 6041(a) and 6041A(a) Dawson U.S. Tax Court Opinions: Mieczyslaw Kurek (noting that this reference to 1099-MISC applies to pre-2020 years, with 1099-NEC being the current requirement).
The failure to properly issue these forms can result in significant penalties and may affect your ability to claim certain tax benefits related to independent contractor relationships. Understanding when and how to issue Form 1099-NEC is essential for maintaining proper tax compliance and supporting the independent contractor classification of your workers.
Sources
- IRS IRM 2.3.53 Command Code PMFOL
- IRS IRM 4.19.26 Campus Backup Withholding Return Compliance Program Procedures
- IRS – Instruction 1099-MISC and 1099-NEC: Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Information and Nonemployee Compensation
- IRS – Publication 225: Farmer’s Tax Guide
- IRC § 6071(c)
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