The Form 1099-NEC (Nonemployee Compensation) is used to report payments of $600 or more made to nonemployees for services performed as part of a trade or business. This form is typically issued by businesses to contractors, freelancers, or independent service providers. Below are the key details:
Types of Services that Qualify for 1099-NEC Reporting:
- Freelance or Contract Work:
- Writing, graphic design, software development, or consulting services.
- Example: Paying a freelance writer $1,000 for blog content.
- Professional Services:
- Accountants, attorneys, or architects hired on a contract basis.
- Example: A small business paying an independent CPA $700 for tax preparation.
- Gig Economy Services:
- Work performed through gig platforms, like ridesharing or delivery services.
- Example: Paying an independent delivery driver for contract work outside a platform.
- Maintenance and Repair:
- Cleaning services, repairs, or landscaping provided by independent workers.
- Example: Hiring a handyman to fix office equipment.
- Consulting and Advising:
- Business strategy consultants, marketing advisors, or project managers.
- Example: Paying a marketing consultant $2,000 for a campaign strategy.
- Creative and Artistic Work:
- Musicians, photographers, videographers, or artists.
- Example: A photographer paid $800 for a photoshoot.
Exceptions and Situations Not Covered by 1099-NEC:
- Employees:
- Payments to employees are reported on Form W-2, not 1099-NEC.
- Corporations:
- Payments to C corporations or S corporations are typically excluded unless for specific legal or medical services.
- Goods and Materials:
- Payments for tangible products or materials (e.g., purchasing supplies) are not reported on 1099-NEC.
- Rent and Royalties:
- Rent payments go on Form 1099-MISC; royalties over $10 are also reported there.
- Personal Payments:
- Payments for personal services (e.g., hiring a neighbor to mow your lawn) are not reported unless part of a business.
Common Threshold:
- A 1099-NEC is required if payments total $600 or more to a single payee during the tax year.
