Form 1099-NEC is used to report non-employee compensation of $600 or more during the tax year (2020, 2021, 2022, 2023, etc.). Handmade business owners, if you paid more than $600 to someone that is NOT an employee, you could likely have to file a Form 1099-NEC.
Tax season is here, and it means more than just getting YOUR income and expenses in order so you can file your tax return.
If you’re involved in a trade or business (which you are) then you also have an obligation to prepare and submit Form 1099-NEC when you make the following types of nonemployee compensation payments for:
- Professional fees
- Commissions
- Prizes
- Awards
- and, any other form of compensation for services performed
to someone that isn’t classified as your employee and given a W-2 by your business.
As a handmade business owner you could need to file Form 1099-NEC
When you pay $600 or more by checks written from your business checking account, by cash, or by your banks bill pay system for:
- tech editing services
- contract crocheter or knitter
- virtual assistant
- any type of service (including parts and materials if they were part of the service
- freelance or subcontract services
- commissions and/or affiliate sales
- professional fees
- money paid to an attorney
to a single person or other business during the year (2020, 2021, 2022, 2023, etc.), you must complete and mail a 1099-NEC by January 31, (2021, 2022, 2023, 2024, etc.) indicating the amount you paid them in Box 1 Nonemployee Compensation. These forms must be mailed to the IRS, the State Tax Department, and the person or business you paid the money to – and they must postmarked by no later than January 31.
The good news is
Yes, there is GOOD NEWS, if you made these payments using a credit card, debit card, or even PayPal or Stripe – then YOU aren’t responsible for submitting the 1099-NEC’s.
The IRS makes the credit card issuers and third-party payment networks (like PayPal and Stripe) report the payments on your behalf using a different form (a 1099K), and you don’t have to do a thing!
If you made payments of $600 or more and need to submit Form 1099-NEC
You must purchase the forms from Staples or another office supply store or use an online service such as efile4biz (I’d recommend using their efile, print & mail service).
The 1099-NEC is a 5-part form, consisting of:
- a copy for the IRS which MUST be a pre-printed form that’s all in red
- another for the State Tax Department (pre-printed in black)
- 3 copies for the person or business that the money was paid to
There is also a cover sheet called a Form 1096 which you must submit.
But wait….. there’s more!
Ya, dealing with the IRS is never easy! There’s a rule and then there can be multiple exceptions to that rule …… So here we go. You,
- need a Form W-9 completed by each person or business that you paid (or think you’ll pay) more than $600 (another good reason to get yourself an EIN)
- a Form W-9 provides you with all the info about person or business that you are paying money to that you’ll need to complete the 1099-NEC
- don’t need to send 1099-NEC forms to MOST S or C Corporations or to LLC’s that have chosen to be treated as S or C Corporations
- need to send a 1099-NEC to individuals, sole proprietors, and single member LLC’s
Non-employee compensation USED to be reported on Form 1099-MISC in box 7 but is now reported on the 1099-NEC form beginning with tax year 2020 – going forward.
Have questions? Feel free to drop them in the comments below.
So would a 1099-nec need to be issued to a person who teaches knitting in a yarn shop if paid more than $600 last year? Thank you for your help.
Hi Sylvia.
Yes, you’d need to issue a form 1099-NEC to someone who teaches knitting in a yarn shop IF you paid them by cash from the register, a business check, or via bill pay through your business checking account. Make sure you get that W-9 form I mentioned in this post and have the person complete it and give it to you (you’ll need to keep it on file with your other business records).
[…] I’ve been a bookkeeper (egads 38 years and counting) there has always been a requirement for filing a 1099 when paying others for goods and services a business purchased that had a value of $600 or more […]