In this guide, you’ll learn how to file Form 1099-NEC correctly, when it’s required, what counts as nonemployee compensation, and how to stay compliant with IRS deadlines.
What is the 1099-NEC Form?
Form 1099-NEC is used to report nonemployee compensation. You send it to the IRS or the freelancer when you pay someone who isn’t your employee, like a freelancer, consultant, or contractor, for services. The IRS brought back this form in 2020. Before that, businesses used Form 1099-MISC for the same purpose.
Now, the 1099-NEC Form is the one you use to report professional service fees, project-based work, and other self-employment income. Form 1099-NEC is one of the key information returns used by the IRS to track nonemployee compensation.
When to use the 1099-NEC Form
You must file it if:
- You paid $600 or more to a U.S.-based contractor in a tax year.
- The payment was for a service (not products or materials).
- The worker isn’t your employee.
- You made the payment part of your business, not a personal transaction.
Form 1099-NEC is used explicitly for reporting non-employee compensation to the IRS. This applies to freelancers, consultants, and anyone paid as a self-employed professional. They use this form to report income and pay self-employment taxes to the IRS.
This form helps the Internal Revenue Service (IRS) track taxable income that’s not reported through regular payroll taxes. Contractors then use the form to pay self-employment taxes (like Social Security and Medicare taxes) on their own.
Who needs to file it?
You must ensure you report payments correctly by filing Form 1099-NEC if your U.S.-based business paid nonemployee compensation of $600 or more to any U.S.-based freelancer or contractor in a single tax year. Filing it correctly and on time is crucial to avoid penalties.
This includes:
- Agencies.
- Startups.
- E-commerce brands.
- Any company that pays for services from external professionals.
You file it if you:
- Hired a self-employed person (not your employee).
- Paid them as part of your trade or business.
- Paid for services, not goods.
- Didn’t pay them via credit card or PayPal (those are reported on 1099-K).
💡 Reminder: This form is only for businesses, not personal payments. If you paid your friend to paint your house, you don’t need a 1099-NEC.
What about the contractor?
If you’re the payer, you file the form, not the contractor. However, the contractors still need it to complete their tax return and report their self-employment income.
Contractors must receive Form 1099-NEC to report their income properly and pay self-employment taxes, including Social Security and Medicare.
Even if they don’t receive the form, they’re still required to report that income. However, missing documentation may cause errors, underreporting, or IRS issues.
What kind of workers does it apply to?
Use it for freelancers, sole proprietors, or consultants who send invoices and control how they work, even part-time or in direct sales.
Even direct sales agents or part-time consultants can qualify. This is about how the person works, not what they call themselves. You might receive services from someone who doesn’t have a company – if they’re self-employed, this still applies.
→ Need help finding the right freelancer or understanding their status? Check out our guide to hiring independent contractors.
What counts as nonemployee compensation?
Nonemployee compensation means money you pay to someone who is not your employee, in exchange for services. Accurate nonemployee compensation reporting is crucial for tax compliance, as it ensures that all payments are properly documented and submitted to the IRS.
You must report non-employee compensation on Form 1099-NEC if the following are true:
- The worker isn’t on your payroll.
- You paid them at least $600 in one tax year.
- You paid them for business services, not personal help.
- They are not a corporation (in most cases).
Examples of nonemployee compensation
Here’s what usually counts:
- Professional service fees (design, consulting, development, marketing)
- Payments to freelancers and contractors.
- Fees for legal, accounting, or copywriting work.
- Commission payments.
- Health care payments to non-corporate providers.
- Project-based compensation for independent workers.
Recipients of nonemployee compensation are responsible for paying self-employment tax on this income. If you’re unsure, ask yourself: Did I pay someone who isn’t on my payroll to do something for my business? If yes – that’s likely nonemployee compensation.
What doesn’t count?
You don’t need to include:
- Payments to corporations (in most cases).
- Payments made by credit card or PayPal – the processors report these.
- Payments for products, goods, or rent.
- Wages for employees (those go on a W-2, not 1099-NEC).
📌 Important: If you withheld backup federal income tax, you still need to report the tax withheld on the form.
What information do you need before filing?
Before you can file Form 1099-NEC, you need to collect a few key details. Don’t wait until the last minute – missing info can delay your filing or lead to tax liability. Accurate information is crucial to determine the correct amounts to report on Form 1099-NEC. Here’s what to prepare:
1. Contractor’s taxpayer identification number (TIN)
You’ll get this from Form W-9. It includes the contractor’s:
- Name.
- Business name (if any).
- Social Security number (SSN) or Employer Identification Number (EIN).
- Address.
An estate can also receive Form 1099-NEC if it receives nonemployee compensation. The IRS uses the taxpayer identification number to track income and verify tax forms. Without it, you might have to do backup withholding.
2. Total payments made
Check your accounting system or invoices. Add up everything you paid that qualifies as nonemployee compensation. This goes in Box 1 of the 1099-NEC.
3. Any federal or state income tax withheld
If you withheld any federal income tax from payments to the contractor (rare, but required in some cases), report it in Box 4 of Form 1099-NEC. This might happen if the contractor failed to provide a valid TIN on their Form W-9, and you had to apply backup withholding. Some states also require you to report state income tax withheld. Always check your state’s rules before filing.
4. Your business info
This includes:
- Your legal business name.
- Your address.
- Your TIN (EIN or SSN).
This goes in the payer section of the form.
5. Send the right copies
IRS gets Copy A, the contractor receives Copy B, and you keep Copy C. If your state requires it, send Copy 1 there too.
Tip: You can’t just email these. Copy A must be on the official red IRS form (if mailing). Use the IRS website to preview it, but order the real ones if you file by mail.
→ Want a full breakdown of how to manage freelancer payments? Explore our complete guide to paying freelancers.
How to fill out 1099-NEC Form
Filling out the 1099 NEC form isn’t complicated, but small mistakes can lead to tax penalties, delays, or IRS notices.
Here’s how to do it step by step. Filling out Form 1099-NEC involves several steps, including gathering necessary information, accurately entering data, and double-checking for errors to ensure compliance with IRS requirements.
1. Payer info (your business)
Enter:
- Your legal business name.
- Mailing address.
- Taxpayer Identification Number (TIN) – your EIN or SSN.
Make sure this info matches what’s on your tax return.
2. Recipient info (contractor)
You’ll need:
- Contractor’s full name.
- Mailing address.
- Their TIN (SSN or EIN from their W-9).
Check that this matches what they submitted. Mismatched data can trigger an IRS flag.
3. Box 1: Nonemployee compensation
Enter the total amount paid during the tax year for services. This is the key box – it shows the earned income the contractor will use to pay self-employment taxes.
💡Don’t include reimbursements (money you paid back for supplies or materials) if they sent a separate receipt. Only report the amount paid for their services.
4. Box 4: federal income tax withheld
Most businesses don’t withhold federal income tax unless the contractor fails to give a TIN. However, if your business withholds federal income tax from nonemployee compensation, it must be reported regardless of the payment amount. If you did withhold tax, enter the amount here. If not, write “0.”
5. Box 5–7 (state info)
Use these only if your state requires you to report state income tax withheld or other local info. Check state rules or ask your accountant.
6. Form type and copies
- You need one form per contractor per tax year.
- You’ll send multiple copies:
- Copy A – to the IRS.
- Copy B – to the contractor (they’ll use it for their Schedule SE and tax return).
- Copy C – for your records.
If you’re filing electronically, use IRS-approved software or services. If you’re mailing, you’ll also need Form 1096 as a cover sheet. More details here: How to file Form 1096.
→ Are you still figuring out the best way to handle contractor payments? Here’s how to pay independent contractors legally and efficiently.
IRS deadlines and penalties
The IRS sets strict rules for filing Form 1099-NEC. Miss the deadline, and you could face serious fees, even if the form is only a few days late. Note that missing the filing deadline can result in significant penalties.
When to file the 1099-NEC Form
You must:
- Send Copy B to your contractor by January 31
- File Copy A with the IRS by January 31 – no exceptions, even if the date falls on a weekend
This applies whether you’re:
- Filing electronically.
- Mailing forms with Form 1096.
If you’re late, there are penalties per form. And yes, you’ll be fined for each contractor, not just once. If you send Copy B by the January 31 deadline, contractors should receive it by early February.
Penalties for late filing (per form)
- Up to 30 days late: $60.
- 31 days to August 1: $120.
- After August 1: $310.
- Intentional disregard: $630.
These fines apply to each copy, so you could see $1,890 or more if you miss three contractors.
📌 Tip: Mark your calendar early. Start gathering info in early January or even late December. The IRS doesn’t send reminders.
How to file it – paper vs. electronic
You can file Form 1099-NEC in two ways: by mail or electronically. Each method has its own rules. Choosing the right one depends on how many forms you need to send. It is crucial to use the correct tax form, specifically Form 1099-NEC, for reporting nonemployee compensation to ensure compliance with IRS regulations.
Option 1: File by mail
- Use the official red Copy A from the IRS (don’t print from PDF – it won’t scan).
- Include Form 1096 as a cover sheet.
- Send to the correct IRS address based on your state.
💡Important: You must mail by January 31, or the next business day if that date falls on a weekend.
Option 2: File electronically
If you’re filing 10 or more information returns (e.g., Forms 1099-NEC, 1099-MISC, W-2, etc.), the IRS requires you to file them electronically, usually through the FIRE system.
Benefits:
- Faster
- No need for paper forms
- Instant confirmation of receipt
You can also use tax software or a filing service to make things easier. Many will:
- Auto-fill contractor details.
- Handle Copy B delivery.
- Track filing status.
- It helps you avoid errors.
You can use platforms like QuickBooks, Tax1099, or Track1099 to file Form 1099-NEC electronically.
📌 Tip: Even if you’re under the 10-form rule, filing electronically saves time and reduces the risk of mistakes.
What about foreign contractors?
Form 1099-NEC is used when a U.S. business pays a U.S.-based independent contractor. If your contractor lives and works outside the U.S., you don’t file this form. However, paying foreign contractors correctly is crucial to ensure compliance with tax regulations. But that doesn’t mean you skip documentation.
→ Hiring internationally? Here’s how to pay international employees legally and stay compliant.
What to do instead
For foreign contractors, request:
- Form W-8BEN – this confirms their non-U.S. tax status.
- Proof that services were performed outside the U.S.
💡 If the work is done in the U.S., you may have to withhold federal income tax and report it on Form 1042-S. This depends on tax treaties between countries and the earned income type. Learn more: IRS Form W-8BEN.
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*Note: Useme doesn’t fill out or file Form 1099-NEC.
Summary: 1099-NEC Form
Form 1099-NEC is among the most important tax forms if your business works with independent contractors. It helps the IRS track non-employee compensation and ensures contractors pay taxes on their self-employment income. Independent contractors can take advantage of various deductions to reduce their tax liability.
Quick checklist
Before the due date (January 31), make sure you:
- Collect a signed W-9 with a valid taxpayer identification number.
- Confirm you paid $600 or more in the tax year.
- Report nonemployee compensation (services, not goods).
- Track whether any tax was withheld.
- Send Copy B to the contractor.
- File Copy A with the IRS (with Form 1096, if mailing).
- Use e-filing if submitting 10+ forms.
- Keep a Copy C for your records.
If you work with self-employed individuals outside the U.S., don’t file this form. Instead, collect Form W-8BEN, and consider using a platform like Useme to handle the legal and payment side for you.
Disclaimer: This article is for general informational purposes only and doesn’t constitute legal, tax, or financial advice. Always consult a qualified professional about your specific situation. For official guidance, visit the IRS website irs.gov.
