If you received a 1099-NEC, it is entered under Personal Income, Other Common Income. You will need to enter your business information which will create your business profile.
Beginning with the 2020 tax year, the IRS will require business taxpayers to report nonemployee compensation on the new Form 1099-NEC instead of on Form 1099-MISC. Businesses will need to use this form if they made payments totaling $600 or more to a nonemployee, such as an independent contractor.
If you are self-employed,
- You can expect to receive this new form from a business that paid you $600 or more for nonemployee compensation in tax year 2020 or later.
- You should receive these forms by January 31 each year (February 1 in 2021 on account of January 31 falling on a Sunday). and use them to prepare your tax return.
What is nonemployee compensation?
The IRS explains that, in general, you must report payments you make if they meet the following four conditions:
- The payment is made to someone who is not your employee
- The payment is made for services in the course of your trade or business
- The payment is made to an individual, partnership, estate, or corporation
- The payment total is at least $600 for the year
Additionally, businesses will need to file Form 1099-NEC
- when they pay an individual at least $10 in royalties, or
- if the business has withheld any federal income tax under the backup withholding rules regardless of the amount of payments for the year to the nonemployee.
Nonemployee compensation can include:
- Prizes and awards for services performed by a nonemployee
- Other forms of compensation for services performed for your trade or business by an individual who is not your employee
What details do I need to know about the 1099-NEC form update?
Self-employed individuals should not see personal payments made to them during the year on the new form. Instead, your form should only report payments made as compensation related to the company’s trade or business.
- The nonemployee compensation reported in Box 1 of Form 1099-NEC is generally reported as self-employment income and likely subject self-employment tax.
- Payments to individuals that are not reportable on the 1099-NEC form, would typically be reported on Form 1099-MISC.
The IRS provides a more comprehensive list of the types of payments that would be reported in Box 1.
Some examples include:
- Commissions paid to nonemployee salespeople that are subject to repayment but not repaid during the year
- Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, etc.
- Fees paid by one professional to another, such as fee-splitting or referral fees
- Payments by attorneys to witnesses or experts in legal adjudication
- Payment for services, including payments for parts or materials used to perform the services