Yes, referral fees or finder’s fees are generally reportable on a Form 1099-NEC if they meet certain conditions. Here’s what you need to know:
Key Points:
1. When Referral Fees or Finder’s Fees Are Reportable:
- You are required to issue a 1099-NEC if:
- The referral or finder’s fee is $600 or more in a calendar year.
- The payment is made to an individual or entity that is not an employee.
- The payment is part of a trade or business (not personal).
2. Common Scenarios:
- Real Estate Agents or Brokers: Paying a referral fee to another agent.
- Business Referrals: Compensating a nonemployee for referring new clients.
- Gig Economy: Finder’s fees for contractors or freelancers connecting businesses with opportunities.
3. Who Should Receive a 1099-NEC?
- Independent contractors, freelancers, or unincorporated businesses.
- Payments to C corporations or S corporations are generally excluded unless they are for legal or medical services.
When a 1099-NEC is NOT Required:
- Personal Referrals: If the payment is unrelated to a trade or business (e.g., giving a friend a thank-you gift for a casual referral).
- Employee Bonuses: If the recipient is your employee, report the payment on Form W-2 instead.
- Small Payments: If the total payment is less than $600, you do not need to issue a 1099-NEC, but the recipient is still required to report it as income.
Tax Implications for the Recipient:
- The person or entity receiving the referral fee must report it as taxable income, whether or not they receive a 1099-NEC.
