1099 NEC: List of Payments Not Covered

1099 NEC

What is a 1099 NEC? Well, the 1099-NEC is one of the groups of 1099 forms that must be filed with IRS by all persons carrying on business to report payments to non-employee like independent contractors or professionals such as physicians, artists, writers, advocates. The NEC in form 1099 NEC stands for Nonemployee Compensation. Like all other 1099 forms, the central purpose of 1099 NEC is to collect information about income to a non-employee.

The IRS use the payment information to compare the payee’s reported income on Form 1040. If some gap in reported income and tax return is found, then such a tax return may be subjected to an IRS tax audit. In a way, this completes the cycle of monitoring the income and expenses of a business entity that claims these expenses on its business return. Hope that answers the common qestion “What is a 1099-nec form used for ?”

Who files 1099 NEC?

Anyone who carries on business or profession and pays at least $600 to anyone other than a corporation (generally) who is not an employee for any kind of service in the course of carrying on a trade or business, need to file the 1099 NEC form to IRS. List of persons who are required to file 1099-NEC on payments exceeding $600 to a persons are :

  1. Individuals carrying on business or profession
  2. partnership firms
  3. trust or exempt organization in course of carrying out business
  4. Federal, state, or local government agencies are also reportable.

List of payments not reportable on 1099-NEC

Following types of payments are not subjected to 1099NEC filing.

  1. If payments are made to a corporation or an LLC that is treated as a C or S corporation, it is not to be reported on 1099-NEC.(with the exception of medical/health care payments, legal fees and proceeds paid to an attorney)
  2. If you paid for physical products or goods— not services
  3. If you are paying commission or fee to real estate agents or property managers, it is not covered.
  4. If you are paying wages paid to employees (report on Form W-2, Wage and Tax Statement).
  5. Similarly, payments to employees for on active duty in the Armed Forces or other uniformed services
  6. Since business travel allowances paid to employees are reportable in W-2, it is also not reportable on 1099 NEC. Similarly, the cost of current life insurance protection.
  7. Payments to a tax-exempt organization including the United States or a foreign government is also not covered.
  8. Payments made to or for homeowners from the HFA Hardest Hit Fund or similar state program.
  9. Compensation for injuries or sickness by the Department of Justice or
  10. Compensation for wrongful incarceration.
  11. Scholarships and fellowships paid to US tax residents.
  12. Payments to difficulty-of-care payments not covered in Form 1099-NEC.
  13. Cancelled debt is not reportable on Form 1099-NEC.
  14. Transit passes and parking for independent contractors if their value in any month exceeds $21 or less.
  15. Directors’ fees and other remuneration including payments made after retirement on Form 1099-NEC
  16. Payments as commissions to lottery ticket sales agents by a state.
  17. Payments made on behalf of another person are reportable under section 6041 on Form 1099-NEC.
  18. Payments to tax-exempt organizations who do not carry any business or trade

There are some other exceptions as well. Further, each exception noted above has certain conditions attached to it. You are advised to go through IRS 1099-nec instructions

How to file 1099 NEC with IRS?

You can file 1099NEC electronically as well as manually in paper form. IRS recommends filing 1099 electronically as this speeds tax refunds. Right now IRS has no online method of filing 1099 NEC on its own and in all probability by December 2022, their own system of efiling of 1099 be ready to operate. Read this. Don’t worry! But there are many online efiling portals that provide this service. So answer to your question “How to file 1099 NEC online ? ” is hidden in googling the term “website for filing 1099 NEC” , you will get many many websites for filing 1099NEC electronically.

As far as filing 1099 NEC in paper form is concerned, you need to fill the form 1099-NEC which has different copies -Copy A ,Copy 1,Copy2 , Copy B and Copy C. See the table below :

Payer CopiesRecipient Copies
Copy AShould be filed with the IRSCopy BShould be furnished to the recipients.
Copy 1To be filed with the state agencies. (Only if required)Copy 2To be given to recipients to file with their state income tax return.
Copy C Copy for payers to maintain in the business records.

What is the filing deadline for 1099 NEC?

The deadline for the Form 1099-NEC must be filed by January 31 of the following year whether you file on paper or electronically. So the last date by which a business owner/entity must send all copies of Form-NEC Copy A to the IRS and Copy B and Copy 2 to any nonemployees for whom a form was completed is 31st Jaunary 2023 for tax year 2022.

What are the penalties for a business failing to meet a 1099-MISC or 1099-NEC deadline?

Section 6721 and 6722 of IRC provide penalty rule for following types of failures

  1. A failure to file an information return which is 1099 NEC on or before the required filing date
  2. A failure to file correct and complete 1099 NEC
  3. A failure to issue payee statement correctly and within time allowed. [refer section 6722]

Late filing of 1099 NEC could lead to penalties ranging from $50 to $280 per Form, with a maximum of $1,130,500 a year for your small business which is calculated on the basis of following rule

  1. $50 per Form, if you file within 30 days of the due date; maximum penalty of $197,500
  2. $110 per Form, if you file more than 30 days after the due date but by August 1; maximum penalty of $565,000
  3. $280 per 1099, if you file after August 1; maximum penalty of $1,130,50

The penalty for not providing a correct payee statement intentionally carries a penalty of $560 per 1099, with no maximum for the year.

Should recipients be given statements?

If you are required to file Form 1099-NEC, you must furnish a statement to the recipient with a single payee statement reporting all Form 1099-NEC payment types. You are required to furnish the payee statements and file with the IRS by January 31.

Correcting an error in 1099 NEC

1099 NEC correction is very much possible for a Form 1099-NEC that was already submitted to the IRS. For correcting paper forms, see the 2020 General Instructions for Certain Information Returns, part H; and for correcting the 1099 NEC filed electronically see Pub. 1220.

Where to mail 1099 NEC forms?

If you prefer to file Form 1099-NEC by paper, you have to send it along with Form 1096, the summary Form for 1099-NEC to the respective address listed below.

If your principal business, office or agency, or legal residence in the case of an individual, is located inUse the following address
Alabama, Arizona, Arkansas, Delaware, Florida, Georgia, Kentucky, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Texas, Vermont, VirginiaInternal Revenue Service Austin Submission Processing Center P.O. Box 149213 Austin, TX 78714
Alaska, Colorado, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin, WyomingInternal Revenue Service Center P.O. Box 219256 Kansas City, MO 64121-9256
California, Connecticut, District of Columbia, Louisiana, Maryland, Pennsylvania, Rhode Island, West VirginiaDepartment of the Treasury Internal Revenue Service Center 1973 North Rulon White Blvd. Ogden, UT 84201
If your legal residence or principal place of business is outside the United States, file with the Internal Revenue Service, Austin Submission Processing Center, P.O. Box 149213, 
Austin, TX 78714.
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