Say 'Hello' to the New(ish) 1099-NEC Form

/ Planning Within Reach/

What is a 1099?

A 1099 is an IRS form that documents money paid or received (by someone other than your employer). There are different types of 1099 forms, depending on the transaction. Here are a few examples that you may be familiar with:

1099-B - Records the sale of securities.

1099-DIV - Records dividends received.

1099-INT - Records $10 or more in interest received.

1099-R - Records distributions or rollovers from retirement plans.

1099-NEC - *NEW’ish* - Beginning tax year 2020, compensation for non-employees (contractors or freelancers) will be recorded on a 1099-NEC. For example, if you were paid to speak at a conference, write an article, or engaged in a side gig, you may receive a 1099-NEC.

The last time this form was used was 1982. For 38 years, this income was recorded in Box 7 of the 1099-MISC form. So while the 1099-NEC is “new” for many of us, it is actually being resurrected from the IRS form graveyard. The due date to issue a 1099-NEC is January 31st, for the previous year. Here is the form and complete list of requirements.

1099-MISC - This form captures all other income that does not fit anywhere else. The 1099-MISC has been re-worked to remove Box 7, non-employee compensation. Remaining items include rents, prizes, and awards paid. Here is the form and complete list of requirements.

Who needs to issue a 1099-NEC?

If you paid at least $600 for services in connection with your trade and business, then you need to issue a 1099-NEC by January 31st. The 3 items that the IRS wants on the 1099-NEC are:

  • Services performed by someone who is not your employee (including parts and materials) (box 1);

  • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or

  • Payments to an attorney (box 1). 

Noted Exceptions

A 1099-NEC is NOT needed for the following cases:

  • Payments under $600 - The sum of all payments to the contractor or freelancer need to exceed $600. If it is less than $600, the recipient still needs to claim the income on their tax return, but the payor is not required to send them a 1099.

  • Personal transactions - 1099s are only required for payments and services in connection with the operation of a trade, business, or non-profit.

  • Payments to Corporations - 1099s are only required for payments to sole proprietors, partnerships, LLCs, LPs, and Estates. One exception - the IRS wants you to issue a 1099-NEC if you made a payment to an attorney (even if they are a Corporation). They are still subject to the $600 or more requirement.

  • Payments to Professional Property Managers - Property Managers will send you a 1099 documenting your rental income received, etc., but you do not have to issue them a 1099 for the property management fees you paid.

How to Issue a 1099

If you are self-employed and want to understand how everything comes together at tax time, this is my process. I have an alert that pings me the first week of January to do the following:

  • Log into my bookkeeping software, Quickbooks Online, and run a Report by “Vendor” for the previous year. Sort all payments by “vendor”. If the sum of all payments to any one vendor equal or exceed $600, they are exported into Excel for further evaluation.

  • Using the exported list, review each vendor’s website or email them directly to determine how they are organized. Circle any vendors that are not a corporation and any vendors that are attorneys (since attorneys need a 1099 regardless of their organization).

  • Using my refined list, I request a W9 from the vendors remaining. The W9 will include their mailing address, Tax ID number, and the type of entity (Corporation, LLC, etc). These items are needed in order to issue the 1099.

  • Create and send the 1099. I use eFile4Biz.com. It is very easy to create and issue the 1099s electronically and to have a copy emailed directly to the recipient, ensuring they will receive the information they need to complete their taxes in a timely manner.

Do you Need Tax Help?

Tax laws and forms are always changing. If you want someone to help you stay on top of all of the changes, schedule a call to see if we can help.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.