Form 1099 NEC

What it is, why it’s important and how to automate

By: Erin Fennimore

VP of Tax Solutions, TaxBit

Published on:

Over the past decade there has been a rapid rise in gig economy workers across the likes of Uber, Doordash, etc. These “gig” workers have found flexibility and new income streams while businesses have been able to reduce their liabilities by not taking on as many full-time employees. Enterprises that employ independent contractors do not issue Forms W-2, but instead they are required to issue a Form 1099-NEC for the “non-employee compensation” paid within a tax year. 

What is Form 1099-NEC?

Form 1099-NEC is a tax form that is used to report non-employee compensation. This includes payments made to independent contractors, freelancers, and other self-employed individuals. The form must be filed by the payer of the compensation, and it must be sent to the IRS and the recipient of the compensation.

What are Form 1099-NEC requirements?

  • The payer must file Form 1099-NEC for any non-employee compensation paid in excess of $600.

  • The payer must include the recipient's name, address, and TIN (Social Security number or EIN) on the form.

  • The payer must also include the amount of non-employee compensation paid to the recipient.

  • The form must be filed with the IRS by January 31 of the following year.

  • The recipient must also receive a copy of the Form 1099-NEC by January 31 of the following year.

What is Non-Employee Compensation? 

Generally, non-employee compensation can include the following: 

  • Fees

  • Benefits

  • Commissions

  • Prizes and Awards performed by a non-employee

  • Other forms of compensation 

Form 1099-NEC is important because it helps the IRS track income that is not subject to withholding. This income is reported and taxed by the taxpayer as self-employment income and is subject to the corresponding tax rates.  taxed at the recipient's marginal tax rate, which can be higher than the tax rate for employees. 

It is important to note that enterprises will need to File a Form 1099-NEC if any back-up withholding has been applied regardless of the actual payment paid to the recipient. 

How do Businesses Prepare for Form 1099-NEC

One of the best ways to prepare for the series 1099 reporting requirements is to automate your process and reporting. This can be done using a software solution that automatically generates information returns with customer and payment data within your source system and files at the federal and state levels. 

Automating your reporting can save you time and money, and it can also help you avoid errors. Overall, automation is the key to scaling information reporting efficiently and effectively. Simplify your tax compliance with TaxBit. Our modern approach to tax compliance automates information collection and validation from onboarding to form generation, delivery, and filing - enabling you to stay compliant with an ever-changing landscape. 

Learn more about how TaxBit can assist your business with a scalable tax compliance solution.

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