Every Year as tax time rolls around inevitably, I get the frantic phone calls from potential clients because there behind in getting their 1099-NEC filed. Their vendors and contract employees are screaming bloody murder. If this sounds a little bit like you it may be time to up your game.
Just remember that as a small business owner you may both send a 1099 and receive a 1099. We’ll look at both.
To be clear there are MANY different 1099 forms we are only going to look at the 1099-NEC. If you have questions about the other ones send us an email and we’ll try to answer the questions for you.
Free 1099-misc tracking sheet: Get our ” 1099-Misc Spreadsheet” that lets you keep track of your vendors and contractors all year long. Make tax season a breeze.
What the Heck is a 1099-NEC Form Anyway?
The first thing to understand is what is the 1099-NEC and why do we need it.
The form is used by companies to tell the IRS that you paid an individual, non-employee money for services over $600.00 annually You know I love examples so ….
Let’s say you hired a web design company to redo your website and paid that company $1000.00. At the end of the year (January 31st) of the following year, you will need to send three entities a copy of the 1099-NEC.
- The IRS
- The state government
- The company or individual that you paid.
Andrea's Tip
This includes all independent contractors who do work for you. If your’re not sure you can check out our article So, you’re thinking about making a new hire for more information on independent contractors vs. employees.
Now if you have someone work for you as an Independent Contractor you can request a Taxpayer Identification Number and Certification. This can be used to verify the TIN or the Social Security Number or an Employer Identification Number (EIN). Though, to be honest you probably won’t need this. But if you do You can find the information here.
How do you know if the person you hired needs you to issue 1099? You need to request their W9. The W9 proves what the type of business is. Corporation, Sole Proprietorship, Limited Liability etc. The W9 is what proves it. If you ever get audited, they will want a copy of that on file for at least four years, If you don’t have them on file you can send the form here
Going back to the Web developer that you paid $1000.00 to redesign your website. Before they get started or before you pay them even one dime get their W9. If you need a copy you can find it here. (Insert Link)
Andrea's Tip
Going forward there is going to be a LOT more changes in documents you need to fill out and send to contractors, vendors or suppliers. Make sure you get a W9 from each of them BEFORE you pay them. (Even if they are a corporation).
What Information Do I Need to Create the 1099-NEC
The only thing you need to create 1099-NEC is their W9. It will have all the information to prepare and send the form to the three groups mentioned above.
The second thing you’ll need is the actual form. Believe it or not, you won’t be able to download a refillable form and send it out. You will need to purchase the form. Online or by mail. However, in order to mail this information to the IRS you will need the RED-INK Forms that you buy in packs at your local office supply store.
Andrea's Tip
You will incur penalties if you try and use the 1099-Misc form downloaded from the website so when you order you may want to keep plenty on hand.
You will have to order the form from the IRS. Which you can do Here
How to Electronically File the 1099-NEC Forms
1099-Misc are really easy to file online. You can use an online service and file them electronically, Usually for less than 5 dollars for each form.
The Services will do the following automatically
- E-File your forms with the Federal and State Government
- Mail a copy of 1099 to your contractors
- Give you a PDF copy for your records
Andrea's Tip
They will also email a copy of the 1099 to your contractors….Please, Please, Please do NOT DO this…not only does it send your personal EIN, or SSN unsecurely but it also shares the contractors’ information and this is an easy way for TAX Identity Theft to occur.
What Happens if My Client Doesn’t Send Me a 1099-NEC Form?
Let’ say you are supposed to receive 1099 from a client and January 31st rolls around and nothing shows up. You call your client, and they play hide and seek with you. Well, you could go pound on their door but hey these things happen. First off, hopefully, you got their information EIN, SSN or Tin but if not, you will need to report the income anyway (as long as you earned over 600.00). While it’s nice for the IRS to have something to cross check against your income, it’s not mandatory for you to have it to report the income.
Andrea's Tip
In case of an audit, you want to have a back up invoice or a receipt of payment so that you can verify your income for that client.
What Happens if My Vendor or Contractor Refuses to Send me a W9?
I try not to worry about why someone might refuse to fill out their W9 or send me the information. But it happens far more often than I would like for both me and my clients. The fines can be big, and it doesn’t excuse the business from filing the 1099 and some more issues.
- Make sure you made a request in writing for the documentation. This could be an email form. You’ll need to request this at multiple times throughout the year. Keep track of this because as you know documentation is everything for the IRS.
- Make the request for the W9 at the beginning of the relationship
- Make a second request prior to December 31st
- And a third request Prior to January 31st of the following year.
- If you’ve sent the request and you still have the invoices due to the vendor independent contractor, you’re going to have to begin backup withholding of 24% IMMEDIATELY. The money you withhold will be reported on Form 945 and sent to the IRS.
Note* If no money is still owed you can skip this step
- You MUST file the 1099-NEC even if they do not send you their W9.
Andrea's Tip
You will file the 1099-NEC with all the information that you have. If you have a copy of their EIN great but if you don’t you’ll have to Mail the 1099 with Refused where the EIN or SSN will go.
2. If you’ve sent the requests and you still have invoices due to the Vendor you’re going to have to begin backup withholding of 24% immediately. The money that you withhold will be reported on the Form 945 and sent.
3. You will still file a form 1099-MISC EVEN if they Refuse to send you their TIN, EIN or SSN.
Andrea's Tip
You will not be able to fill out this form electronically because you can’t have blank spaces . You will need to complete the Paper Form Write the Word REFUSED where the TIN, EIN or SSN is supposed to go and put all the information you do have on the document.
How Do I Correct a 1099 Form?
Hey, mistakes happen you type in a wrong number or maybe you were trying to get ahead of the game, and you filled out the form wrong. No worries it’s pretty easy to correct.
File out a new 1099-NEC form and Place an X in the “VOID” box at the top of the form and then issue a new 1099 with an X in the “Corrected” box. The enter in zeros for all the money amounts. Send the corrected form to the IRS and make sure you send a copy to your Vendor/Supplier or contractor.
Free 1099-misc tracking sheet: Get our ” 1099-Misc Spreadsheet” that lets you keep track of your vendors and contractors all year long. Make tax season a breeze.
What Happens if I file My 1099-NEC Forms Late?
I know that filing a 1099 form may be rushed and you may not be able to get the form in on time. You should, however, take the penalties very seriously as they can be quick to rack up.
The amount of the penalty is based on when you file the correct information and goes as follows:
| 1099-NEC | Penalty (per form) | Maximum Penalty (Annually) |
| Less than 30 days late | $50.00 | $194,000 for small businesses, $556,500 for larger businesses |
| More than 30 Days Late | $110.00 | $556,600 for small businesses, $556,500 for larger businesses |
| After August 1, 2023 | $270.00 | $1,113,000 for small business, $3,339,000 for larger businesses |
As you cnn see the penalties (not even including interest) are substantial. The IRS desginates a small business as making less than $5,000,000 per year on average over the last three tax years.
Putting it All Together
I know that there is a lot of information here but if you’ve read through the article you now have all the tools you need to file your 1099-NECs without a penalty. If you’re struggling to put your taxes together, you can feel free to check out some of our other blog posts like The Big Fat List of Small Business Tax Deductions or our Tax Preparation Handbook.
If you have questions or need a consultation you can always talk to us.
