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One of the most confusing parts of business taxes is 1099-MISC/NEC forms. I've met so many online entrepreneurs who had no idea they even needed to do anything with a 1099-MISC/NEC form.
So let's break down everything you need to know about 1099-MISC/NEC for your online business into plain English that you can understand.
As of 2020 tax filings, the 1099-MISC has been renamed to the 1099-NEC (non-employee compensation). Same form, just a different name.
What is a 1099-MISC/NEC?
This is a tax form that the company who RECEIVED money from another company/person will issue. If more than $600 was exchanged in a calendar year, this form should be issued.
This form informs government bodies (federal, state and local) of money you received in your business. Or if you are the one issuing them, how much money you paid to someone else during the course of the year.
If you paid a person or company more than $600 in one calendar year, you should be issuing a 1099-MISC/NEC to that person or company. This person or company must also be located in the USA, so if you work with someone who is outside the USA in your business, you will not be issuing a 1099-MISC/NEC to them.
What do I need to complete a 1099-MISC/NEC?
To complete a 1099-MISC/NEC, you need to have a W-9 filled out by the person or company who you paid the money to. This W-9 will list all of their pertinent information: name, address, business type, and social security number or EIN.
NOTE: No matter what type of business legal structure you have (sole proprietor, LLC, partnership, S Corporation, C Corporation), get an EIN from the IRS. It is free. It saves you from having to hand out your social security number to everyone. If you have to pay to get an EIN, then you are not getting it from the IRS. It typically takes about a month to get your EIN in the mail after you apply.
If you work with someone who does not operate in the USA, you must have them fill out a W8-BEN form. Then you will just keep this form on file with all of your other tax and financial documents. This form just indicates that you did your due diligence in proving that the company or person you paid did not live in the USA.
The other thing you need when you are completing a 1099-MISC/NEC is the total amount of money you paid the person or company you are issuing a 1099-MISC/NEC to.
These forms are quite easy and simple to complete when you have all of the right information. I personally like to use Yearli to complete my tax forms and send them off.
Who receives 1099-MISC/NECs?
Any company or person who operates in the USA and has a sole proprietor, LLC or partnership.
If the company or person has an S Corporation or C Corporation, they would not be issued a 1099-MISC/NEC.
If you paid the company or person solely through PayPal, you will also not need to issue a 1099-MISC/NEC. PayPal will issue this for you.
These forms are typically issued to those people or companies who perform services for your business. Accountants, lawyers, virtual assistants, OBMs, social media managers, Pinterest managers, community managers, etc. fall into this category.
When you buy products and courses from a company, these don’t necessarily qualify alone. But if you were to buy products and courses, as well as services from one business or person, then the full total you paid would be included on the 1099-MISC/NEC.
When do I need to send 1099-MISC/NECs?
1099-MISC/NECs need to be postmarked to the recipient by January 31 (or the first business after January 31 if it falls on a holiday or weekend).
Then the cover sheet, transcript and copies of the 1099-MISC/NECs must be sent to the IRS by February 28 (or the first business day after February 28 if it falls on a holiday or weekend).
This extra time in between allows the recipient to receive, review and confirm that the information is correct before you send all of the information to the IRS.
What about receiving 1099-MISC/NECs?
What if you receive a 1099-MISC/NEC in your business? Check out this post detailing what to do if you receive multiple forms.
You would just use these forms to report your income on your tax return when you file it.
Are you in the know about keeping your business in compliance with the tax laws?
As a business owner, it is your sole responsibility to make sure you are in compliance with the tax laws that apply to your business. This means, you either need to do the proper research to make sure you are covered in all of the ways possible, or work with someone who can help keep you covered and in the know.
You already have a lot of hats that you wear as a business owner, so hiring a professional who has the education and knowledge about the tax laws is going to be most beneficial to you.
These professionals will also help you know if you should be issuing 1099-MISC/NECs to people and companies who you purchase from.
Whether you know or not about sending 1099-MISC/NECs in your business, you most likely have at least 1 or 2 that you should be sending. So make sure you are in compliance with the tax laws.
And to make your tax time less stressful and easier, my course Painless Tax Prep will help you. Spend approximately 3 hours with my course and you’ll be prepared to hand just 3-5 pieces of paper to your tax preparer to have your taxes done. How much stress relief is that?
Make your tax prep easier this year with Painfree Tax Prep! You'll learn all the important things to prepare your business for taxes this year and be able to easily hand over your records to your tax preparer with little stress.
With Painfree Tax Prep, you get:
- Workshop explaining all the things you need to know to easily prepare for your taxes
- Estimated Tax Payment explanation
- Masterclass on 1099's
- Masterclass on Business Legal Structures
- The Tax Prep Power Pack
- and more!