What is Form 1099-NEC?

Form 1099-NEC (Nonemployee Compensation) is a tax document used to report payments of $600 or more made to independent contractors for services provided during the calendar year. Businesses use this form to meet IRS reporting requirements, while contractors use it to report income on their tax returns.

Things to know

• Form 1099-NEC is specifically for independent contractors; workers classified as employees receive Form W-2.
• The standard IRS deadline to provide 1099-NEC forms to contractors and the IRS is January 31 for the prior tax year.
• This form is typically used for services (like repair technicians or DJs) rather than the purchase of goods from vendors.

Information included on a 1099-NEC

To ensure accurate reporting, a 1099-NEC must contain verified identifying information for both the business and the service provider.

• Contractor details: Legal name, address, and Taxpayer Identification Number (TIN), which can be an SSN or EIN.
• Business details: Your business name, address, and Employer Identification Number (EIN).
• Compensation: Total nonemployee compensation paid during the calendar year (Box 1).
• Backup withholding: Any federal income tax withheld from the contractor (if applicable).

Restaurant-specific considerations

Restaurants often work with various service providers who may fall under 1099-NEC reporting requirements.

Service providers vs. vendors

You generally do not issue a 1099-NEC for product suppliers or food vendors. However, you likely need to issue one for independent contractors like photographers, DJs, or maintenance technicians if payments meet the $600 threshold.

Collecting contractor information

Always request a completed Form W-9 from a contractor before they begin work. This form provides the accurate legal name and TIN required for your year-end filings.

How to correct a 1099-NEC

If you identify an error in the payment amount or contractor details after filing, you must issue a correction to the IRS and the recipient.

1. Identify whether the error involves recipient details, financial amounts, or both.
2. Request an updated Form W-9 from the contractor to verify their legal name and TIN.
3. File a corrected 1099-NEC with the IRS according to their current filing guidelines.
4. Provide the corrected copy to the contractor for their tax records.

7shifts Payroll and contractors

Accurate worker classification is essential for your tax compliance.

• Verify that the worker is correctly classified as a contractor (1099) rather than an employee (W-2) within your records.
• Ensure you have a valid W-9 on file for every contractor paid during the year.
• Review your total payments to each contractor to determine if they meet the $600 IRS reporting threshold.