If you are not an employee and receive payments for services, you typically get a Form 1099-NEC, which reports nonemployee compensation.
Businesses issue Form 1099-NEC to report payments made to individuals who are not their employees, such as independent contractors, freelancers, or other service providers. This form serves to inform both you and the IRS about the income you earned from a business for services rendered, rather than as an employee's salary or wages.
Understanding Form 1099-NEC
Form 1099-NEC stands for "Nonemployee Compensation." It was reintroduced for the 2020 tax year to specifically report payments for services that were previously reported in a different section of Form 1099-MISC (Miscellaneous Income).
Who Issues Form 1099-NEC?
It is crucial to understand that you do not fill out Form 1099-NEC yourself. Instead, the business that hired you and paid you for your services is responsible for issuing this form to you and the IRS.
Here's a quick overview of the roles:
| Party | Action | Form |
|---|---|---|
| Business/Payer | Reports payments made to nonemployees. | Form 1099-NEC |
| Individual/Recipient | Receives the form to report income. | Form 1099-NEC |
Who Receives Form 1099-NEC?
You will receive a Form 1099-NEC if a business has paid you at least $600 for services in a calendar year, and you are not considered an employee. This generally applies to:
- Independent Contractors: Individuals who offer their services to the public and work for multiple clients, such as graphic designers, consultants, or specialized tradespeople.
- Freelancers: Professionals who work on a project or contract basis for various companies or individuals, like content writers, web developers, or photographers.
- Gig Workers: Individuals performing tasks or services for payment, often arranged through digital platforms.
- Any nonemployee receiving compensation for services, including fees, commissions, prizes, awards, or other forms of compensation that are not wages.
Why is Form 1099-NEC Important?
When you receive a Form 1099-NEC, it means the IRS also has a record of the income you received. This income is generally considered self-employment income and is subject to self-employment taxes (Social Security and Medicare taxes) in addition to income tax. You will use the information on Form 1099-NEC when preparing your tax return (typically on Schedule C, Profit or Loss from Business) to report your gross receipts or sales.
