Form 1099-NEC – Nonemployee Compensation is the tax form that is used for reporting payments made to nonemployees. As someone who’s operating a business, you can use this tax form to report payments made to freelancers and contractors.
Assume a contractor installed security cameras at the worksite and you’ve paid the individual $2,000. Since the contractor needs to be furnished with an information return reporting this payment, use Form 1099-NEC to do so. This tax form will also come in handy because you need to prove to the IRS the business expenses so you can deduct them from your taxable income when filing a federal income tax return.
Now that we’ve explained the use of Form 1099-NEC, we will explain the instructions to file along with weighing your options for this tax obligation.
Note: You can use 2021 Form 1099-MISC to also report nonemployee compensation instead of 2021 Form 1099-NEC. This will help you skip filing 2021 Form 1096 separately from other Forms 1099-MISC you file.
Instructions to File – Line by Line
Line 1 – Nonemployee Compensation
Enter the total amount paid to the individual for the services provided.
Line 2 – Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale
If you made direct sales of $5,000 or more of consumer products for resale, check the box.
Line 3 – Other Payments
Use this part of Form 1099-NEC to report other income payments made such as expense reimbursements, deceased employee wages, cost of life insurance protection, etc.
Line 4 – Federal Income Tax Withheld
Enter the total amount of income tax withheld for federal income tax purposes.
Line 5 – State Income Tax Withheld
Enter the total amount of income tax withheld for state income tax purposes.
Line 6 – 7 – 8 State Information
Enter the information required about the state along with the amount of income tax withheld for state income tax purposes.