What is a 1099-NEC Form?
The 1099-NEC form, which replaced the 1099-MISC form in 2020, is what your client will deliver to the IRS if they request more than $600 worth of work from you. The Internal Revenue Service (IRS) uses this information to verify your income and federal income tax levels.
If you’re an independent contractor, sole proprietor, or a part of a single-member LLC, your client should request a Form W-9 from you to ensure you’re a contractor. Once you declare you are, your clients will send one copy of the 1099-NEC form to you and one to the IRS.
You have to report all income to the IRS, even if it falls below $600 for certain clients. However, the client doesn’t have to send a 1099-NEC form to the IRS in these cases.
Schedule C Form
The Schedule C is part of Form 1040, which sole proprietors use to let the IRS know their profit and loss statement. The IRS also uses this information to calculate how much taxable profit you earned and assess the total taxes owed or refunds you’ll receive in some cases.
If you have multiple businesses, you’ll need to file multiple Schedule C’s, but you won’t have to file a separate Schedule C for every 1099-NEC you receive. The Schedule C also contains information about your deductions, which you’ll want to take advantage of to lower your taxes.
When Shouldn’t I Get a 1099-NEC Form?
If you’re considered a freelancer, sole proprietor, or single-member LLC, you should receive a 1099-NEC from each client you worked for unless you were hired through a freelancer marketplace. Upwork and Fiverr are technically payment settlement entities, not employers.
However, if you earned more than $20,000 or have 200 transactions, you’ll need to fill out a Form 1099-K. Otherwise, all of your tax filing information should be in your account.
Employees, C corporations, and S corporations won’t fill out a 1099-NEC. If your client has hired you as an employee but sent you a 1099-NEC form anyway, you’ve likely been misclassified. Contact your client immediately to receive the proper forms before the cut-off date.
What Happens if I Don’t Receive a 1099-NEC When I Should?
Independent contractors are responsible for filing their tax returns before April 15th, even if their clients do not send their 1099-NEC forms to the IRS. If you still haven’t received Copy B (the contractor 1099-NEC copy) by January 31st, contact your clients directly to remedy this.
Whether you or the IRS receives a copy from the client, you do not have to file the 1099-NEC on the client’s behalf. Do not send an extra copy of the 1099-NEC to the IRS.
If your client doesn’t send the IRS copy by the 31st of January, they’re subject to a minor penalty. It’s in their best interest to give you your copy, but documents sometimes get lost in the mail. To receive your 1099-NEC copy faster, consent to receiving tax information electronically.
Your client may neglect to file their taxes, but that shouldn’t stop you from declaring your income. You should file your taxes anyway to avoid the $50-$260 penalty or more from delaying to file. If you need extra time, you can request an extension using IRS Form 8809.