Form 1099-NEC and reporting nonemployee compensation

This tax year millions of independent workers will receive Form 1099-NEC in the mail or electronically—prompting questions of what it is and how to use it for taxes.

Businesses use Form 1099-NEC to report payments made to nonemployees, like independent contractors or freelancers. That said, you don’t fill out this form—the business that hires you does! We’ll cover all the form details and 1099-NEC instructions for filing.

What is a 1099-NEC Form?

Let’s start by answering “What is 1099-NEC?” The 1099-NEC is the Internal Revenue Service (IRS) form to report nonemployee compensation—that is, pay from 1099 independent contractor jobs (also sometimes referred to as self-employment income). Nonemployee compensation includes fees, commissions, or any other compensation paid by a business to an individual who is not an employee.

Who gets a 1099-NEC?If you’re not on a company’s payroll as an employee but work for them independently and you’ve made at least $600 during the year, there’s a good chance you could receive this form.

Common 1099-NEC workers:

• Freelancers and independent contractors for skilled work (like graphic designers, writers, or consultants)
• Gig workers (transportation services like driving for companies like Uber, Lyft, or DoorDash, grocery or food deliverers, or personal and home service providers)
• Service providers (like cleaning, repair, or home service professionals)
• Individuals or businesses receiving fees, commissions, or other compensation for services

1099-NEC vs 1099-MISC

The IRS introduced Form 1099-NEC for independent contractor tax reporting in the 2020 tax year as part of the Form 1099 series of information returns. The form is dedicated to reporting nonemployee compensation, which was previously reported on Form 1099-MISC. Find details about other types of 1099 forms.

Do you need more help with Form 1099-NEC or other forms from independent contractor work? Check out our Guide to Gig Worker Taxes.

What is nonemployee compensation?

If you’re totally new to nonemployee compensation — and given the continued rise in gig workers, there’s a good chance you are — read on. There are important tax considerations to know about now, so don’t wait until tax time. Gig worker taxes are something you want to wrap your head around well before it comes time to file your tax return.

Nonemployee compensation is paid to 1099 independent contractors, not W-2 employees. If that distinction doesn’t ring a bell, be sure to review the difference between employee and independent contractor work statuses.

From a tax standpoint, here’s the main difference:

• Employees: Employers will take out various payroll taxes (such as federal, state, and local taxes plus Social Security and Medicare taxes) from employees’ paychecks based on the Form  W-4 you complete when you’re hired. At tax time, employees will receive a Form W-2 from their employer. (Note: A W-2 form should be issued to an employee by the deadline, which is on January 31st).
• Independent contractors: As an independent contractor, you’ll complete Form W-9 to certify your Taxpayer Identification Number (typically your Social Security number) for tax purposes. Take note: Your check won’t have any payroll taxes withheld. That means paying taxes as you go falls on your to-do list. At tax time, you’ll receive Form(s) 1099-NEC to show the total amounts you were paid for the year.

Tax reporting for 1099-NEC workers

“Is 1099 self employed income taxable?” In most cases it is. You should figure your self employed taxes on the nonemployee compensation shown on this 1099-NEC form. To avoid an underpayment penalty, you should continue to pay taxes as you go and not wait until tax time.

Instead of doing it on a by-paycheck basis, you’ll do it with quarterly estimated payments. That means four times a year, you’ll send a tax payment to the IRS and any applicable state and local revenue departments.

Need some help with that? Check out the basics of paying estimated taxes on IRS Form 1040-ES. For more on financial considerations of receiving nonemployee compensation, review these common problems for gig workers.

Nonemployee compensation and the 1099-NEC form

So, let’s get back to IRS Form 1099-NEC and outline what it reports and what you do with it. Essentially, businesses use this form to report payments for services as part of their trade or business. In addition to individuals, a business may file Form 1099-NEC to a partnership, estate, or corporation.

The 1099-NEC only needs to be filed if the business has paid you $600 or more for the year. Even if you made less than $600, you’ll still need to report all your income on your tax return. You must file a return if you’ve made at least the minimum income to file a tax return. Also, you must file a return to pay self-employment taxes if your net self-employment income is at least $400. Self-employment taxes are explained below.

When you get your Form 1099-NEC for your nonemployee compensation, you’ll see that you’ve received Copy B. The business that paid you will send Copy A to the IRS. You’ll see 1099-NEC instructions on Copy B.

On the form itself, you’ll see your personal information, such as your Taxpayer Identification Number, and the amounts paid to you. There are also boxes for federal income tax and state tax information, but they will most likely be empty unless you’re subject to back-up withholding.

You’ll use the amount in Box 1 on your Form 1099-NEC to report your self-employment income. Instead of putting this information directly on Form 1040, you’ll report it on Schedule C.

What else should you know about filing taxes with nonemployee compensation?

Another step in the process is to calculate and pay self-employment taxes. As a 1099 independent contractor, your coverage of Social Security and Medicare taxes is paid through these taxes. To determine your self-employment taxes, you’ll use Schedule SE. For the details, find out how self-employment tax works.

Here’s some good news: As an independent contractor, you may be eligible to take the qualified business income deduction. This deduction lets you take a deduction up to 20% on pass through income (i.e., income from a sole proprietorship, partnership or S corp that is reported on your personal tax return).

More good news: you can also reduce your tax liability by taking ordinary and necessary business deductions related to the activity for which you received the Form 1099-NEC.

1099-NEC Form FAQs

Who files Form 1099-NEC?

A business that makes payments totaling $600 or more to a nonemployee typically needs to file Form 1099-NEC. Refer to this post’s “Nonemployee compensation and the 1099-NEC form” section for details.

Also, any business that withholds federal income tax from nonemployee compensation, regardless of the amount of payment, should file a 1099-NEC.

What happens if you receive Form 1099-NEC and Form W-2?

You might get Form 1099-NEC and Form W-2 if you earned income from different jobs. For example, if you work full-time and also have a side gig, you will get both forms. The IRS will use the income from both forms to figure out how much tax you owe.

What happens if you receive Form 1099-NEC and Form 1099-K?

In some instances, you may get a Form 1099-K, Payment Card and Third Party Network Transactions for the same income. In this case, you only need to report the income once.

Overall, it’s important for you to keep excellent records of your income and expenses so that you can match your income with the information returns you receive from businesses.

When is Form 1099-NEC due?

The deadline for businesses to send Form 1099-NEC to independent contractors is January 31. If this date falls on a weekend or holiday, the deadline is the next business day. Then independent contractors must use the form to file their form by tax the tax deadline.

What should you do if you don’t receive your 1099-NEC on time?

You should report all the income you get in a tax year on your federal return. If you don’t get a 1099-NEC from an employer and should have, still report the amount of nonemployee compensation made.

Get help filing your return with Form 1099-NEC

Who knew that being an independent contractor would mean so many changes to your taxes? It’s definitely new territory if you’ve only ever received a Form W-2.

Check out these filing options for 1099 independent contractor tax forms:

• File with H&R Block Deluxe Online (if you have no expenses)
• File using H&R Block Self-Employed Online (if you have expenses).