Form 1099-NEC: Report Nonemployee Compensation for 2024-25

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Guide to Understand 1099-NEC Tax Form

1099 NEC Form contains two copies. These two copies are categorized into Copy A and Copy B.

Copy A is the copy that will be sent to the IRS, while

Copy B will be sent to the business’s contractor albeit with their consent.

The 1099-NEC Form can be mailed directly to the IRS or filed.

Both payer and recipient information includes the filer’s name, address, and taxpayer ID. Non-employee compensation can be found in Box 1 including the total compensation for the past tax year.

Box 4 is to report any federal income tax withheld, as it’s uncommon that this will be the case unless the filer has received a backup withholding order for that filer. If the filer’s state has an income tax, include the total payment amount to that filer for the year and any state tax you withheld in Box 5.

Self-employed individuals should not see personal payments made to them during the year on the new form. Instead, the filer’s form should report payments made as compensation related to the company’s trade or business.

If you are self-employed:

• You can expect to receive this new form from a business that pays $600 or more for non-employee compensation in the 2021 tax year or later.
• You should receive these forms by January 31 every year (if January 31 falls on a weekend, then you will receive it the following business day) and use them to prepare your tax return.

Who Must File Form 1099-NEC?

The IRS 1099-NEC is an important form that will eventually be filed by every registered business at some point. After filing Form 1099-NEC with the IRS, you must send your contractor or freelancer a copy. Any business that makes nonemployee compensation payments around $600 or more to at least one payee or withholds federal income tax from a non-employee’s payment will now use this revamped form to report those payments and withholding.

The IRS explains in general, that you must report payments you make if all the following conditions apply:

• When the payment is made to an individual who is not your employee
• When the payment is made for services during your trade or business
• When the payment is made to an individual, a partnership, an estate, or a corporation
• When the payment total was at least $600 for the year Have withheld federal income tax concerning the amount you pay outside contractors for the tax year
• Made payments for services during the process of making the business transaction or trade.
• Made payments for renting or buying tools for service.
• Have withheld federal income tax concerning the amount you pay outside contractors for the tax year

Additionally, businesses will need to file Form 1099-NEC:

• When they pay an individual at least $10 in royalties, or
• If the business has withheld any federal income tax under the backup withholding rules regardless of the amount of payments for the year to the nonemployee.