How to File a 1099-NEC Form for Vendors & Contractors?

Filing taxes can be complex, especially when reporting payments made to independent contractors and vendors. As such, a business requires Form 1099-NEC as an important document that accounts for compliance with the Internal Revenue Service (IRS) and proper reporting of non-employee compensation.

Whether you are just starting on this requirement or are looking to streamline your process, it’s important to understand the ins and outs of filing a 1099-NEC form.

Let’s review what Form 1099-NEC is, who is required to file it, and a few key exceptions. Finally, it will outline best practices in issuing the form, step-by-step instructions on filing, and answer frequently asked questions to smooth out the process.

By the end, you will have all the tools and knowledge needed to handle your 1099-NEC filing with confidence and efficiency.

What is Form 1099-NEC?

Form 1099-NEC is one of the 1099 series tax filings re-instated in 2020 to report nonemployee compensation. The purpose of filling it out is to report payments of $600 or more made to any non-employee, such as freelancers, contractors, vendors, and the like. Businesses will fill out this tax form reporting such payments made during the year, including the recipient’s Taxpayer Identification Number.

Who Needs to File a 1099-NEC Form?

W-2 forms detail the wages employees earn in a year and the taxes withheld or paid by the employer. In contrast, Form 1099 NEC reports the income earned by vendors, independent contractors, and freelancers during the same period.

By law, businesses must issue Form 1099-NEC to applicable vendors, contractors, and freelancers, and file these forms with the Internal Revenue Service (IRS) by January 31. This requirement applies to individuals, sole proprietors, partnerships, and certain LLCs.

To file a 1099 NEC properly, a name, address, amount paid, and taxpayer identification number (like a Social Security number or Employer Identification Number)is necessary.  U.S.-based vendors, contractors, and freelancers typically provide this information by completing a Form W-9 before starting work.

Most businesses streamline this process using payroll providers such as Gusto, Rippling, Justworks, or Deel. These platforms handle W-9 collection, payment tracking, and 1099-NEC filing and distribution, making year-end compliance more manageable.

Exceptions to Filing a 1099-NEC

Your business is required to issue 1099-NEC forms to U.S. vendors, contractors, and freelancers, but there are a few key exceptions:

1) Payments Under $600 –

If you paid less than $600 to a vendor, contractor, or freelancer during the tax year, you don’t need to issue a 1099-NEC.

2) C-Corporations and S-Corporations –

You don’t have to issue 1099-NEC forms to vendors structured as C-corporations or S-corporations. The exception is attorney fees—these must be reported regardless of the firm’s tax status.

3) Foreign Vendors or Contractors –

1099-NEC forms aren’t required for international vendors, contractors, or freelancers. Instead –

• Individuals should fill out Form W-8BEN.
• Entities should complete Form W-8BEN-E.

These forms aren’t filed with the IRS but should be kept on record in case of an IRS audit.

4) Payments Through Third Parties –

1. If you paid via credit card, debit card, gift card, or third-party payment platforms like PayPal or Stripe, the payment processor will handle reporting with Form 1099-K, so you don’t need to include those transactions on 1099-NEC forms.
   
2. Payroll and Expense Processors – Platforms like Expensify, Gusto, Zenefits, Rippling, and Justworks often handle 1099-NEC filings for payments made through their services. Check with your provider to confirm.

Best Practices for Issuing 1099-NEC Forms

Handling W-9 and 1099-NEC forms can be a hassle, but planning can save you from last-minute stress during tax season. Here is how to stay organized –

1) Request W-9 Forms Early – When you start working with U.S.-based vendors, contractors, or freelancers, ask them to fill out a W-9 form immediately. This ensures you have the details needed for issuing a 1099-NEC later.

2) Track Payments – Throughout the year, monitor all payments—whether made by cash, check, direct deposit, or services like Bill.com. Any payment exceeding $600 to an individual vendor, contractor, or freelancer may require a 1099-NEC form.

3) Err on the Side of Caution – If you are unsure whether someone qualifies for a 1099-NEC or what type of entity they are, it’s safer to treat them as a potential recipient. Sending an unnecessary form is better than missing one.

4) Compile and Share the Information – Create a list of all potential 1099 recipients, along with the amounts paid to them. Share this with your tax preparer, who can handle filing the 1099-NEC forms for you.

 By gathering necessary information and keeping track of payments throughout the year, you can avoid tax season chaos and make the filing process smoother.

How to File a 1099-NEC Form?

Filing a Form 1099-NEC can be done either online or by mail. For online filing, use software or services compatible with the IRS FIRE (Filing Information Returns Electronically) system. Keep in mind that the IRS does not accept scanned or handwritten forms. If filing by mail, you will need to request scannable paper forms directly from the IRS.

Businesses must submit two copies of the 1099-NEC form. Send Copy A to the IRS and provide Copy B to the individual or contractor who received the payment.

The deadline for filing 1099-NEC forms is January 31 which covers payments made in the previous year. Double-check all details for accuracy, retain a copy for your records, and file on time to avoid penalties.

Summary of Simplifying 1099-NEC Filing for Your Business

To file Form 1099-NEC, it is important to realize that under this system, after fulfilling the tax compliance obligation of independent contractor work, businesses remain penalty-free if they follow the requirements, exceptions, and best practices. Keeping all the necessities highly organized throughout the year will keep the whole process very simple and easy.

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