What to report on 1099-NEC
- Services performed by someone who is not your employee (including parts andmaterials) – Box 1
- “Services performed by someone who is not your employee (including parts andmaterials)” (Page 7 of IRS 1099 Instructions)
- “Enter nonemployee compensation (NEC) of $600 or more. Include fees,commissions, prizes and awards for services performed as a nonemployee, andother forms of compensation for services performed for your trade or businessby an individual who is not your employee” (Page 10 of IRS 1099 Instructions)
- There are exceptions for corporations (C-corp, S-corp, LLC taxed as C-corp orS-corp)
- Payments to an attorney – Box 1
IRS 1099 instructions: https://www.irs.gov/pub/irs-prior/i1099mec–2021.pdf (1099-NEC instructions start on page 7)
See exceptions on page 9 of IRS 1099 instructions: https://www.irs.gov/pub/irs-prior/i1099mec–2021.pdf
** Third party network – PayPal, merchant services, Venmo for Business, etc. Third party payment networks are responsible for issuing form 1099-K to recipients.
2022 1099-K rules – Transactions >= $20,000 and >=200 transactions
2023 1099-K rules – Transactions >= $600
FYI Third Party Networks
A third-party network transaction is a transaction where the funds are settled to the user through a third party network. A third-party payment network is any agreement or arrangement that provides for the following:
- A central organization establishes the accounts by a substantial number of providers of goods or services who are unrelated to the organization and who have agreed to settle transactions
- Standards and mechanisms for settling the transactions
- Guarantee of payment to the persons providing goods or services(participating payees) in settlement of transactions
See IRS announcement of delay for implementing $600 reporting threshold for third-party payment platforms: https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k
FYI: Zelle is not considered a third-party payment platform, https://www.zellepay.com/faq/does-zelle-report-how-much-money-i-receive-irs
W-9 Forms
Form W-9: https://www.irs.gov/pub/irs-pdf/fw9.pdf
Best practice: Obtain W-9 form from every vendor.
Minimum requirement: Obtain W-9 from non-employees who provide services.
W-9 services (automate requesting W-9 form from vendors)
Sample W-9 Form. Vendor should fill out all highlighted items.
How to Review W-9 Form
ELIGIBLE FOR 1099 (must also meet criteria to receive Form 1099-NEC)
NOT ELIGIBLE FOR 1099
*Exception – attorneys are eligible for 1099’s even if they are set up or taxed as corporations (Corp or Scorp).
Next Steps
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