When would you need to file a 1099-NEC?

Use Form 1099-NEC only when payments ($600 or more) are made to an individual who is not your employee in the course of your trade or business. Personal payments are not reportable.

If the following four conditions are met, you must generally report a payment as NEC.

• You made the payment to someone who is not your employee.
• You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
• You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
• You made payments to the payee of at least $600 during the year.

Who must file Form 1099-NEC?

• You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements.
• Other organizations subject to these reporting requirements include trusts of a qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or 501(d), farmers' cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts.
• Payments by federal, state, or local government agencies are also reportable.

What are the Fields and Boxes of Form 1099-NEC?

Form 1099-NEC has Payers information, Receivers information and three boxes to report nonemployee compensation, Federal Tax withheld and State information to the IRS. Payer’s information: Name, Address, and TIN Receiver’s information: Name, Address, and TIN

Box 1 - Nonemployee Compensation

Use this box to enter nonemployee compensation (NEC) of $600 or more. For example, a fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600.

Box 2 - Reserved.

Box 3 - Reserved.

Box 4 - Federal Income Tax Withheld

Use this box to enter backup withholding information. For example, persons (payees) who have not furnished their TINs to payers are subject to withholding on payments required to be reported in box 1. A payer must backup withhold on certain payments if the payee did not give their TIN to the payer.

• Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.

• Fees paid by one professional to another, such as fee-splitting or referral fees.
• Payments by attorneys to witnesses or experts in legal adjudication.

Boxes 5 - 7 - State Information

• Use these boxes are provided for your convenience only and need not be completed for the IRS. Use the state information boxes to report payments for up to two states. Keep the information for each state separated by the dashed line.
• If you withheld state income tax on this payment, you may enter it in box 5. In box 6, enter the abbreviated name of the state and the payer's state identification number. In box 7, you may enter the amount of the state payment.

What are the Form 1099-NEC Filing Requirements?

File Form 1099-NEC, Non-employee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:

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.

Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported the payment.