The Form 1099-NEC is a tax form used by businesses to report their payments made to contractors, freelancers, self-employed individuals, and other sole proprietors with the Internal Revenue Service. Form 1099-NEC is an improvisation of Form 1099- MISC where non-employee compensation was reported in box 7.
Form 1099- NEC is now used by businesses to report their internet income, miscellaneous income, dividend, and distribution income with the IRS. The due date for filling this Form is January 31st of the tax year. The recipients will receive this 1099-NEC Form if they have received more than $600 as non-employee compensation in the tax year.
Non-employee compensation: 1099-NEC Form
Non-employee compensation is the money that the company pays to its contractors and independent employees who perform contingent work. Such compensation includes the fees, prizes, commissions, and awards that are paid for the services completed. Freelancers and contract workers who work on an hourly basis for an organization are reported as Non-employee laborers. They are part of the contingent workforce and their compensation procedure is different from the traditional full-time employee. Just because an independent contractor is not affiliated with the general payroll of the organization, their payment and taxes should not be withheld and this is exactly the purpose of Form 1099- NEC.
Who is classified as a non-employee in an organization?
The main difference between employees and Non-employees in an organization is simple and straightforward. The workers under the non-employee category choose the work they do and decide how to complete the assigned tasks on their own. They use their own tools and equipment to complete the work and decide their own working hours and pay rate. Accurate classification of workers is important for both businesses and workers for filing and depositing the taxes from their earnings. Once the organization classifies a worker as a non-employee, then they are held responsible for remitting their own taxes. Under non-employee compensations, the independent contractor will pay tax in the range of 15.3% of their wages. The Form should also be completed by someone whose income tax has been withheld under the backup withholding rules.
Payments reported are Form 1099-NEC
The payments that are reported on Form 1099- NEC are the cost of rents, the cost of prizes and awards, health care and medical bill payments, payments to the attorney, proceeds of fishing and fishing boats, and other income payments such as crop insurance proceeds. If these payments are over $600, then they are to be reported to the IRS. Royalty payments of about $10 should be reported in Form 1099- NEC.
The businesses should send Form 1099-NEC to their independent contractors and other self-employed people who have worked for them during the previous tax year by February 1st of the next tax year. The businesses will send Copy A of the Form to the IRS and send copy B to the employer.
Independent contractors have to make a number of changes to their taxes and with the help of a credible and online tax filing agency, such as Tax2efile, it becomes easy and simple to complete the IRS Form filing process.