The arrival of the New Year also brings with it new responsibilities for small business owners and entrepreneurs. Among those responsibilities are the issuing of the 1099-NEC to the intended recipients before the IRS deadline of January 31st, 2021. But how do you know who is owed a 1099-NEC, or if you even need to issue one?
We’ll begin by explaining what a Form 1099-NEC is.
The 1099 is a form that records and lists the amount of income or payment that a recipient receives that did not come from an employer. There are different kinds of forms but for the sake of a business owner or entrepreneur, they are responsible for the creation and issuing of the NEC version of the form to both the IRS and any person or business whom they’ve paid at least $600 for services rendered. Failure to issue this form to the IRS and its recipient by the deadline is a penalty with no ceiling, which can add up very quickly.
Essentially, if you pay someone who isn’t an employee to do work for your business above the $600 threshold, you must issue a Form 1099 to them and the IRS. For smaller businesses that outsource a lot of their needs, the usual recipients are often subcontractors, independent contractors, attorneys, and freelancers that they have done business with. Which begs the question of why you need to go through all of the trouble to do that in the first place?
Well, that’s because paying an independent contractor means that you don’t withhold the taxes that employees normally have taken from their wages or salary. They are not part of your payroll, so that isn’t your responsibility. However, the government needs to know how much income they received in order to verify that they withheld the taxes on their own and sent payments in. That much you are responsible for, hence why failure to properly issue the 1099 will be penalized.
There’s still a lot left undiscussed and for good reason. Tax-related matters are often very complex, and this post is really only to serve as a reminder that you should send it out before the deadline if you are required to do so. If you are unsure that you need to issue a 1099-NEC, then you should take the time to consult a professional to be safe.
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