Certain types of payments and recipients are exempt from receiving a Form 1099-NEC (Nonemployee Compensation). Here’s a breakdown of who doesn’t need one:
1. Payments to Corporations
- Most payments made to C corporations and S corporations are exempt, except for specific services such as:
- Legal services (reportable regardless of corporate status).
- Payments for medical and healthcare services.
2. Payments Made for Non-Services
- Payments that are not for services (e.g., physical goods, merchandise, or equipment) are not reported on Form 1099-NEC.
3. Employee Payments
- Payments to employees are reported on Form W-2, not 1099-NEC.
4. Personal Payments
- Payments made for personal purposes (not part of a trade or business) are not reportable.
5. Payments to Tax-Exempt Entities
- Payments to organizations that are tax-exempt under IRC Section 501(c) do not require a 1099-NEC.
6. Payments Made by Credit Card or Payment Platforms
- Payments made through third-party payment networks (like PayPal, Venmo for business transactions, or credit card processors) are reported on Form 1099-K instead.
7. Minimal Payments
- If total payments to a nonemployee are less than $600 in a calendar year, a 1099-NEC is not required.
8. Payments for Rent or Other Non-Service Income
- Rent is reported on Form 1099-MISC, not 1099-NEC.
- Non-service payments like prizes or awards, royalties, and fishing boat proceeds are also reported on 1099-MISC, not 1099-NEC.
Special Cases to Consider
- Payments to foreign individuals or entities are generally exempt unless they have a U.S. trade or business and specific filing requirements.
- Ensure clarity about whether the payee qualifies as a contractor or another category to avoid misclassification.
