Employers deduct income tax from their employees' paychecks and remit and report it to the IRS. They give all their employees an IRS Form W-2, Wage and Tax Statement, showing wages and withholding for the year. Employees must file a copy of the W-2 with their income tax returns so that the IRS can compare the amount of income they report with the amounts their employers claim they were paid.
When you're self-employed, no income tax is withheld from your compensation, and you don't get a W-2 form. However, this doesn't mean that the IRS won't have at least some idea of how much money you've made.
If the total of all the payments you receive from a client over a year is $600 or more, the client must complete and file IRS Form 1099-NEC, Nonemployee Compensation, reporting the payments. (Note that IRS Form 1099-MISC, Miscellaneous Information was used in 2020 and earlier to report payments to independent contractors in prior years. However, Form 1099-MISC now reports other miscellaneous income, like rent and prizes.)
In This Article- 1099-NEC Filing Requirements
- What Should I Do About 1099s with Errors?
- What If No 1099-NEC Is Sent?
1099-NEC Filing Requirements
The client must complete and file a copy of Form 1099 with:
- the IRS
- your state tax office if your state has income tax, and
- you.
To make sure you're not underreporting your income, IRS computers check the amounts listed on your 1099 Forms against the amount of income you report on your tax return. If the amounts don't match, you have a good chance of being flagged for an audit.
You don't have to file the 1099 forms with your tax return. Just keep them in your records.
What Should I Do About 1099s with Errors?
You should receive all your 1099 forms for the previous year by January 31st of the current year. Make sure the hiring firms you worked for have your current address, or the forms might not arrive on time (or at all).
Check the amount of compensation your clients say they paid you in each Form 1099 against your own records to make sure they're consistent. If there's a mistake, call the client immediately and request a corrected Form 1099.
If the 1099 has been filed with the IRS, ask the client to send the IRS a corrected 1099. You don't want the IRS to think you were paid more than you really owe. The 1099-NEC form has a special box that should be checked to show that it is correcting a prior 1099 form.
What If No 1099-NEC Is Sent?
It's not unusual for clients to fail to file 1099 forms. This might be unintentional—for example, the client might not understand the rules or might just be negligent in filing them. On the other hand, some clients purposefully fail to file 1099 forms because they don't want the IRS to know they're hiring independent contractors.
If you don't receive a 1099 you're expecting from someone that has your correct address, should you contact them and ask for it? This approach isn't necessary. It's not your duty to see that 1099 forms are filed. This is your client's responsibility. The IRS won't impose any fines or penalties on you if a client fails to file a 1099. It might, however, impose a fine on the client—and exact far more severe penalties if an IRS audit reveals that the client should have classified you as an employee.
Whether or not you receive a Form 1099, it's your duty to report all the self-employment income you earn each year to the IRS. If you're audited by the IRS, it may examine your bank records to make sure you haven't underreported your income. If you underreported, you'll have to pay back taxes, fines, and penalties.
So, keep records of all the nonemployee income that you earn throughout the year. If you take this precautionary step, you'll be well prepared to file your taxes even if someone doesn't send you a 1099-NEC you're expecting.
FAQs
If the 1099 has been filed with the IRS, ask the client to send the IRS a corrected 1099. You don't want the IRS to think you were paid more than you really owe. The 1099-NEC form has a special box that should be checked to show that it is correcting a prior 1099 form.
How do you correct a 1099-NEC? ›
To correct a 1099-NEC, follow these steps:
- Step 1: Identify the Error Type. ...
- Step 2: Prepare a New Form 1099-NEC. ...
- Step 3: Enter the Correct Information. ...
- Step 4: Mark the Form as "Corrected" ...
- Step 5: Prepare a New Form 1096. ...
- Step 6: Notify the Recipient. ...
- Step 7: Submit the Corrected Forms to the IRS.
Penalties for Correcting a 1099 Form
A business generally must pay $100 per incident. The business may also pay a separate $100 fee after the IRS sends a statement to any taxpayer who received an incorrect tax form. Keep in mind that submitting a form with the wrong information is not the only type of error.
Will the IRS catch a missing 1099-NEC? ›
The IRS employs various methods to detect discrepancies in tax reporting, including the absence of 1099 forms. While the IRS does not catch every missing 1099 immediately, their sophisticated systems and data-matching capabilities make it likely that discrepancies will be identified over time.
How to report a false 1099? ›
Use the Form 3949-A, Information Referral if you suspect an individual or a business is not complying with the tax laws. You can submit Form 3949-A online or by mail. We don't take tax law violation referrals over the phone. We will keep your identity confidential when you file a tax fraud report.
What if I received an incorrect 1099-NEC? ›
If the 1099 has been filed with the IRS, ask the client to send the IRS a corrected 1099. You don't want the IRS to think you were paid more than you really owe. The 1099-NEC form has a special box that should be checked to show that it is correcting a prior 1099 form.
How do I cancel a 1099-NEC with the IRS? ›
File the new form with the correct information (correct code or checkbox, amount, code, name, or address). Check "Void," send it to the recipient, and then send another one to the IRS. If you are filing using paper, then you need to do so together with form 1096.
What if I received my 1099 by mistake? ›
Taxpayers may need to file an amended return if they filed with missing or incorrect info. If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their previous estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.
Can you sue for incorrect 1099? ›
If you are really miffed you could try to sue the payor for issuing the erroneous Form 1099. However, most such lawsuits go nowhere and are expensive. And forget trying to bring the IRS into your dispute. Besides, you won't have the suit concluded before the deadline for filing your tax return.
What happens if I don't file a 1099-NEC? ›
If you don't include this and any other taxable income on your tax return, you may be subject to a penalty. Failing to report income may cause your return to understate your tax liability. If this happens, the IRS may impose an accuracy-related penalty that's equal to 20% of your underpayment.
Compensation reported in the 1099-NEC is typically considered self-employment income. So, it may be subject to self-employment taxes.
Will a 1099-NEC affect my tax return? ›
When you receive form 1099-NEC, it typically means you are self-employed and claim your income and deductions on your Schedule C, which you use to calculate your net profits from self-employment. As a self-employed person, you're required to report all of your self-employment income.
Do 1099-NEC get reported to IRS? ›
Payers file Forms 1099-MISC and 1099-NEC with the IRS and provide them to the person or business that received the payment.
How to spot a fake 1099-NEC? ›
A: Fake 1099 forms may exhibit signs such as misspelled names, incorrect address orders, inaccurate income amounts, or unexpected benefits.
What if I received a 1099-NEC but I am not self employed? ›
If you have a 1099-NEC that is not self-employment income subject to self-employment taxes, you need to enter the income in Box 3 of a 1099-MISC instead of Box 1 of the 1099-NEC. If your income is not self-employment income, you do not need to use Schedule C to report business income.
Can I correct a 1099 that I received? ›
There are two types of 1099 errors to be corrected. Type 1 only requires one Form 1099 to be filed to correct the error. Type 2 requires two 1099 forms to be filed to make the correction.
How do I deal with a 1099-NEC? ›
Nonemployee compensation and Form 1099-NEC
The 1099-NEC only needs to be filed if the business has paid you $600 or more for the year. If you made less than $600, you'll still need to report your income on your taxes, unless you made under the minimum income to file taxes.
What is the deadline to file a corrected 1099? ›
There is no hard deadline to file a 1099 tax form correction. The IRS generally prefers for 1099 tax forms to be corrected within three years of their initial filing date. This is because there is a three year window to amend your personal tax return and collect a refund from a corrected 1099 tax form.
Do I need to correct address on a 1099-NEC? ›
The IRS has but does not use the address to process returns, so the 1099 can still be submitted to the IRS, even if your address is different. However, you should correct your address in NCTracks because this is also where a paper payment would be sent.
What if I received a 1099-NEC but I am not self-employed? ›
If you have a 1099-NEC that is not self-employment income subject to self-employment taxes, you need to enter the income in Box 3 of a 1099-MISC instead of Box 1 of the 1099-NEC. If your income is not self-employment income, you do not need to use Schedule C to report business income.
