With reporting season well underway, the reporting deadline for the Form 1099-NEC (Rev. January 2024), Nonemployee Compensation, is drawing near. This article will help break down what the Form 1099-NEC is, along with any associated deadlines and penalties.
What is Form 1099-NEC?
The Form 1099-NEC is used to report nonemployee compensation. It is a single-use form, and it was reintroduced by the IRS in 2020 to help reduce confusion with deadlines while dealing with the Form 1099-MISC. Quick history note: Until the form was reintroduced in 2020, the Form 1099-NEC was last used in 1982!
This form has four copies that need to be filed with various different recipients. Copy A goes to the IRS, Copy 1 is for the State Tax Department, Copy B is for the recipient, and lastly, Copy 2 is to be filed with the recipient’s state income tax return when required.
Who has to file a Form 1099-NEC?
In general, the Form 1099-NEC is used to report nonemployee compensation in the course of a trade or business, so you will see payees like freelancers and independent contractors (including but not limited to) reported on this form. Form 1099-NEC reporting is required if you paid at least $600 in services performed by someone who is not an employee or payments that are made to an attorney. Note, gross proceeds paid to an attorney in connection with legal services are still required to be reported on the Form 1099-MISC, Miscellaneous Information.
You will also need to file Form 1099-NEC if the business withholds federal income tax from a nonemployee’s compensation, regardless of the amount of the payment.
When is the Form due?
The Form 1099-NEC is required to be filed with the IRS and furnished to payees by January 31, 2024. The IRS does not grant an automatic extension for Form 1099-NEC, like with other Forms 1099. You can apply for an extension using the Form 8809, Application for Extension of Time To File Information Returns, if your organizations meets certain hardship criteria included but not limited to a catastrophic event in a federally declared disaster area, fire, casualty, or natural disaster or death, serious illness, or unavoidable absence of the filer.
What’s the penalty for missing the deadline?
If a business fails to file or furnish an accurate Form 1099-NEC by the required deadline, the penalty ranges from $60 for up to 30 days late, with a maximum penalty of $630,500 per year ($220,500 for small businesses) to $310 after August 1 or if not filed at all, with a maximum penalty of $3,783,000 per year ($1,261,000 for small businesses). For tax year 2023, with forms due in 2024, the intentional disregard penalty is at least $630 per information return! Remember, there is no maximum penalty for intentional disregard.
The IRS also charges interest on penalties, where the interest amount varies by the penalty type and amount.
To access the form and its instructions follow the links below: