All businesses are required by law to issue a Form 1099-NEC to relevant vendors, independent contractors, and freelancers, as well as file these same forms with the IRS by January 31. Specific types of vendors covered by this requirement include individuals, sole proprietors, partnerships, and limited liability companies (LLCs).
Form W-9
The first step is to have the contractor/ vendor complete Form W-9, Request for Taxpayer Identification Number and Certification. This form can be used to request the correct name and Taxpayer Identification Number, or TIN, of the worker. The W-9 should be kept in your files for four years for future reference in case of any questions from the worker or the IRS.
Form 1099-NEC
Note: Beginning with Tax Year 2020, you must use Form 1099-NEC, Nonemployee Compensation, to report payments of nonemployee compensation (NEC) previously reported in box 7 on Form 1099-MISC. The separate instructions for filers/issuers for Form 1099-NEC are available in the 2020 Instructions for Forms 1099-MISC and 1099-NEC.
Form 1099-NEC is used by payers to report payments made in the course of a trade or business to others for services.
Exceptions to filing a 1099-NEC
Though your business must issue 1099-NEC forms to U.S. vendors, contractors, and freelancers who were paid for services rendered, there are a few notable exceptions in which you either don’t need to file these forms on your own or at all.
If your business paid less than $600 to a vendor, independent contractor, or freelancer throughout the tax year, you don’t need to send them a 1099-NEC form.
You also don’t need to issue 1099-NEC forms for vendors that are C corps, since owners or shareholders are taxed separately from the company.
If you use a credit card, debit card, gift card, or a third-party payment network, such as PayPal, to pay vendors, contractors, and freelancers, the card issuer or payment processor will report those transactions for you, so you don’t need to report those transactions.
Reimbursement processors, such as Expensify, and payroll providers, such as Gusto, Zenefits, Rippling, and Justworks, will often file 1099-NEC forms for you, as long as they were used to pay all of your vendors or contractors. We recommend checking with your payroll provider to confirm.
