How to file a 1099-NEC form for vendors, contractors, and freelancers

Businesses of all sizes must issue 1099-NEC forms to applicable U.S. vendors, contractors, and freelancers every tax year, but determining who must get one and figuring out how to get it done can get stressful.  

Who needs to file a 1099-NEC form?

While W-2 forms outline the wages employees of a company earn in a given year (along with the taxes that were withheld or paid by the employer), Form 1099-NECs outline the amount that vendors, independent contractors, and freelancers earn in a given year.

All businesses are required by law to issue a Form 1099-NEC to relevant vendors, independent contractors, and freelancers, and file these same forms with the IRS by January 31. Specific types of vendors covered by this requirement include individuals, sole proprietors, partnerships, and certain limited liability companies (LLCs).

A 1099-NEC form for the 2022 tax year is shown above (Courtesy of the Internal Revenue Service)

To properly file a 1099-NEC form, you must have a name, address, amount paid, and taxpayer identification number — such as a social security number or employer identification number — for every vendor, contractor, and freelancer. U.S. vendors, contractors, and freelancers can provide you with the pertinent information by filling out a Form W-9, which should be done before they start work for your company.

Most businesses use payroll providers, such as Gusto, Rippling, Justworks, or Deel to handle the process end-to-end; these providers will take care of W-9 collection, payment tracking, and 1099-NEC filing and distributions at the end of the calendar year.

Exceptions to filing a 1099-NEC

Though your business must issue 1099-NEC forms to U.S. vendors, contractors, and freelancers, there are a few notable exceptions:

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-corporations or S-corporations, since owners or shareholders are taxed separately from your business. The exception here is for attorney fees; payments made to law firms are still subject to the 1099-NEC reporting requirement, regardless of the firm’s tax classification.

Lastly, you don’t need to issue 1099-NEC forms for a foreign/international vendor, independent contractor, or freelancer. Instead, if the foreign vendor or contractor is an individual, they should fill out Form W-8BEN. If the foreign vendor or contractor is an entity, they should fill out Form W-8BEN-E). These forms are not required to be filed with the IRS but should be retained in your company’s records in the event the IRS requests them.

If you use a credit card, debit card, gift card, or a third-party payment network, such as PayPal or Stripe, to pay vendors, contractors, and freelancers, the card issuer or payment processor will report those transactions for you via Form 1099-K, 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.

Best practices for issuing 1099-NEC forms 

Issuing W-9 forms, figuring out who needs to get a 1099-NEC form, and keeping track of it all can be time-consuming. The good news is that there are some steps that you can take throughout the year to avoid last-minute scrambles right before key tax deadlines.

• Ask U.S. vendors, contractors, and freelancers to fill out a W-9 form as soon as you start working with them. Taking this step early on will ensure that you have all the information needed to issue a 1099-NEC later. 
• Review all bank accounts and other tools, such as Bill.com, for cash, check, direct deposit, and electronic funds transfer payments to individual vendors, contractors, and freelancers that exceed $600 for an entire tax year. 
• If you don’t know whether a vendor, contractor, or freelancer needs a 1099-NEC form and what type of entity they are, err on the side of caution and treat them like a potential 1099 recipient. The cost of inadvertently sending a vendor, contractor, or freelancer a 1099-NEC form is much lower than missing one.
• Once you’ve created a list of potential 1099 vendors, contractors, and freelancers, as well as the amount you paid them, share it with your tax preparer, who can file a 1099-NEC on your behalf.

By proactively collecting relevant information you need from vendors, contractors, and freelancers and keeping track of how much they’re paid throughout the year, you’ll be on top of your game once tax season rolls around.

If you’re still searching for tax preparation services, Pilot’s team of experienced tax professionals are here to help.