1099-NEC Guide for LLC Owners

1099-NEC is a tax form used when paying contractors and vendors. NEC is short for ‘nonemployee compensation.’ If you’re a solo business owner and pay other individuals or businesses to work for your business, you may need to submit 1099-NEC forms to the government and the contractor.

Here’s a closer look at what solo entrepreneurs need to know about the 1099-NEC to stay compliant with Internal Revenue Service (IRS) guidelines.

What’s a 1099 NEC?

1099-NEC is a tax form used to report nonemployee compensation. Generally, if you pay a contractor or vendor $600 or more in a calendar year for work performed for your business, your business must file a 1099-NEC for that person or entity.

The 1099-NEC form is relatively simple. For payments to vendors, small business owners need to add tax and contact information for their business, for the recipient, and the amount paid. Outside of less common situations, that’s all you’ll need to include. In some rare cases, you may also need to enter details about Federal or state tax withholdings.

If your payee notifies you they’re subject to backup withholding, you must submit Form 1099-NEC. You can find the latest version of 1099-NEC and updated instructions here on the IRS website.

Who gets a 1099-NEC?

If you’re a vendor or freelancer doing work for another business, you may expect a 1099-NEC. If you’re an employee, you get a W-2 form instead. Payment for services to any non-employee, including government agencies, nonprofits, individuals, and other corporations, may prompt a 1099-NEC.

For product sales, you shouldn’t receive a 1099-NEC. For payments handled through a third-party vendor like PayPal, Stripe, or Square, you should expect Form 1099-K instead. For other income, you may receive Form 1099-MISC. If you accept credit card payments, you likely won’t get a 1099-NEC for those payments.

1099-NEC forms are required for payments to individuals and LLCs. They’re typically not sent to corporations or LLCs with S Corp or C Corporation tax status.

Who has to file 1099-NEC?

You must file a 1099-NEC if you’re a sole proprietorship, LLC, S Corp, or C Corp, and make qualifying payments. Qualifying payments are payments totaling at least $600 for services performed by someone who is not your employee or payments to an attorney.

Certain consumer product sales totaling $5,000 or more and any vendor for which you’ve withheld Federal or state income tax also qualify for 1099 reporting.

Sole proprietors and limited liability company owners can manually file 1099-NEC forms if you only have a few. For businesses with many 1099s to send out, an accounting or 1099 reporting service may be worth the extra cost.

Difference between 1099 NEC and other types of 1099s 

The 1099-NEC is an IRS form used for reporting payments to vendors, but you may encounter different types of 1099s. While you likely won’t need to file them, here’s a more comprehensive list of 1099 forms and basic filing requirements.

1. 1099-A: Acquisition or Abandonment of Secured Property – used when there is a transfer of secured property or abandonment of secured property.
2. 1099-B: Proceeds from Broker and Barter Exchange Transactions – reports the sale of stocks, bonds, or other investments through brokers.
3. 1099-C: Cancellation of Debt – issued when a financial institution cancels or forgives debt of $600 or more.
4. 1099-CAP: Changes in Corporate Control and Capital Structure – used to report cash, stock, or other property received from an acquisition of control or substantial change in capital structure.
5. 1099-DIV: Dividends and Distributions – reports dividends and other distributions to investors.
6. 1099-G: Certain Government Payments – reports certain types of government payments, like tax refunds or unemployment compensation.
7. 1099-H: Health Coverage Tax Credit (HCTC) Advance Payments – reports advance payments of the health coverage tax credit.
8. 1099-INT: Interest Income – reports interest income, usually from bank accounts.
9. 1099-K: Payment Card and Third Party Network Transactions – reports settlement payments of reportable payment transactions.
10. 1099-LTC: Long Term Care and Accelerated Death Benefits – reports long-term care benefits and accelerated death benefits.
11. 1099-MISC: Miscellaneous Information – The 1099-MISC form reports miscellaneous payments, like rents or non-employee compensation.
12. 1099-NEC: Non-employee Compensation – reports independent contractor payments of $600 or more.
13. 1099-PATR: Taxable Distributions Received From Cooperatives – reports distributions received from a cooperative.
14. 1099-OID: Original Issue Discount – reports original issue discount amount.
15. 1099-Q: Payments from Qualified Education Programs – reports distributions from a qualified tuition program.
16. 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
17. 1099-S: Proceeds from Real Estate Transactions – reports the sale or exchange of real estate.
18. 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA – reports HSA and MSA distributions​.

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How to file form 1099-NEC

1099-NEC requires submissions to the recipient and the IRS. The IRS wants a copy to ensure the payee complies with tax requirements, so be sure your forms are accurate. A mistake on a 1099-NEC can result in hassles for the contractor or vendor.

Some bookkeeping apps, like Quickbooks, have 1099 reporting built in for an added fee. You can also use less-expensive third-party apps like Tax1099.com. If you use Gusto through Collective, your 1099-NEC forms are generated and submitted automatically. Just log in to verify that they are accurate and submitted as expected.

If you’re handling it independently, follow these steps to file Form 1099-NEC.

1. Verify 1099-NEC is required: Start by compiling a list of anyone you’ve paid at least $600 during the relevant tax year. If they provided services to your business and are not a S Corp or C Corp, you’ll likely need to prepare and submit 1099-NECs.
2. Prepare Form 1099-NEC details: Gather the vendor’s taxpayer identification number and contact information, which you should already have from Form W-9, and the amount paid during the tax year you’re reporting. Remember, if the person you’re paying works as a business, put the business name on the 1099 form, not their personal name.
3. Submit forms to the IRS and distribute them to contractors: If you use a third-party platform, it will take care of this part for you. Make sure a copy goes to the IRS and the contractor as required. The contractor uses the 1099-NEC to prepare annual Federal income tax returns, and the IRS uses its copy to ensure the vendor pays business tax as required.

Due dates for 1099-NEC and what happens if you don’t file it on time

Form 1099-NEC is due annually to the IRS and payees on January 31st, however the due date is adjusted each year for weekends and holidays. If your business fails to submit 1099 forms by the due date, you may be subject to penalties between $60 – $310 per form. For solopreneurs with a long list of vendors, that could quickly add up to a thousand dollars in penalties.

To ensure you keep up with your payroll tax deadlines, consider adding a recurring reminder on your calendar to avoid missing key due dates and filing deadlines.

Pro-tip: E-filing helps get payroll forms to the IRS as quickly and accurately as possible. If you’re manually filling and filing payroll tax forms, reconsider using a payroll software or tax professional to help streamline the filing process. 

When do you need to file a 1099-NEC?

Instances Requiring a 1099-NEC

1. Independent Contractors

If you’ve hired a freelance graphic designer to create marketing materials and paid them $600 or more during the tax year, a 1099-NEC form is required.

2. Professional Service Providers

Should you engage a legal or consulting firm and the payments for services rendered amount to $600 or more over the tax year, a 1099-NEC form is warranted.

3. Maintenance and Repair Services

If you’ve paid a maintenance company $600 or more during the tax year for repair or maintenance services, a 1099-NEC form must be issued.

Instances Not Requiring a 1099-NEC

1. Employees

Payments to employees are reported on Form W-2, not 1099-NEC. This includes salaries, wages, and other forms of compensation.

2. Corporations

Generally, payments made to corporations for services rendered don’t require a 1099-NEC, although there are exceptions like attorney fees.

3. Merchandise Purchases

If you purchase goods or merchandise for use in your business, these transactions don’t necessitate a 1099-NEC, as the form is primarily for services rendered.

1099-NEC for LLC Owners: Stress-Free 1099-NECs at Tax Time

If you’re a new or seasoned business owner, 1099-NEC forms may be required all the same. With a strong understanding of how 1099-NEC forms work, when 1099-NECs are required, and how to submit to the IRS and your valued contractors, you can stay on the right side of IRS regulations.If you want a trusted partner to handle your 1099-NEC forms, consider joining Collective. We help with bookkeeping, 1099-NEC forms, and more. Learn more about how Collective can help here.