Non-employee compensation is reported in Box 1 of Form 1099-NEC. This form will be available to generate in Wave beginning on January 17, 2022
Form 1099-NEC requirements
You must send Form 1099-NEC, Non-employee Compensation (NEC), to any contractors you have paid at least $600 to during 2021, as well as file the form with the Internal Revenue Service (IRS).
If the following four conditions are met, you must generally report a payment as NEC:
- You made the payment to someone who is not your employee.
- You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
- You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
- You made payments to the payee of at least $600 during the year.
Form 1099-NEC is due to your contractors and the IRS by January 31st of the following tax year. If this date falls on a weekend or holiday, the filing deadline moves to the following business day.
The amount of the penalty is based on when you file the correct information return, and are as follows, with the maximums for small businesses:
- $50 per 1099, if you file within 30 days of due date; maximum penalty of $199,500
- $110 per 1099, if you file more than 30 days after the due date but by August 1; maximum penalty of $571,000
- $280 per 1099, if you file after August 1; maximum penalty of $1,142,000
Not providing a correct statement (intentional disregard) carries a penalty of $570 per 1099, with no maximum for the year.
- Form 1099-NEC can be filed electronically through the IRS' FIRE (Filing Information Returns Electronically).
- Forms 1099-NEC filed with Wave will be e-filed with the IRS. If you choose to file on paper, review IRS requirements and instructions. You may be required to e-file based on the number of information returns you have to submit. The Taxpayer First Act of 2019 authorized the IRS to reduce the maximum number of information returns that could be paper filed in 2021, so be sure to consult the IRS for the latest updates at the time you file.
- If filing on paper, a Form 1096 (cover page) must be sent as well.
- Form 1099-K is still used for payment cards and third party network transactions - this is provided by the third party network directly to the contractor.
- Issuers have the option to truncate the recipients SSN/EIN. This can look either like:
- XXX-XX-1234 or;
- replacing X with *
The IRS introduced Box 2 - Payer Made Direct Sales Totaling $5,000 or More for tax year 2021. This box is for reporting sales of more than $5,000 outside of a permanent retail establishment. For more information on if this box applies to you, refer to the IRS instructions for filing Form 1099-MISC and 1099-NEC. Wave generates 1099-NEC forms to report contractor payments, so does not check off Box 2. If you are reporting payments that require Box 2 to be checked, follow IRS instructions to file directly with the IRS.
How to generate and file Form 1099-NEC with Wave
Your 2021 1099-NEC forms will be available to generate in Wave in January 2022.
With Wave you can generate and file a 1099-NEC form for every contractor marked as a 1099 Contractor and paid more than $600 in the 2020 calendar year. When you generate and file with Wave, remember to provide your contractor with Copy B of the form. Copy B is available to download after generating a 1099-NEC Form.
- Click Payroll > Click Tax Forms
- Choose the year 2021 from the drop down menu
- Click Generate next to the 1099 you would like to file
- Review and confirm the details of yourself, as the Payer and of your 1099 contractor, as the Recipient, including their total compensation for the tax year
- Click Generate 1099-NEC
- On the following page, proceed to Step 3 and click File this 1099-NEC now. When selected, Wave will handle federal and applicable state filing for this 1099-NEC on your behalf.
Please note that you must have an active subscription with Wave Payroll in order to file with Wave. The cost for filing with Wave is $5 per form.
- Repeat these steps for remaining 1099 contractors.
- After 1099-NEC forms are generated, download Copy B and give it to your contractor. Copy C is available for your records.
If you choose to generate Form 1099-NEC with Wave and file on paper, are three versions of 1099-NEC for each contractor:
Copy A: Download to file your taxes. This form is for informational purposes only. In order to manually file with the IRS, you’ll need to order official forms from the IRS. This includes Form 1096, which summarizes all of the 1099-NEC informational returns you are filing.
Copy B: Download and send to your contractor so that they can file their taxes.
Copy C: Download for your records.
What is Form 1096 for?
The IRS Form 1096 is an "Annual Summary and Transmittal of U.S. Information Returns". This form is required when submitting paper forms, including the 1099-NEC, to the IRS. Form 1096 is not sent to recipients.
You do not need to use Form 1096 if you are filing 1099-NEC forms electronically. This means if Wave is submitting 1099-NEC forms on your behalf, a Form 1096 is not required.
How can I ensure my 1099-NEC forms generate with correct amounts?
You can get ahead of tax time by ensuring your bills are marked correctly to have them appear on your Forms 1099-NEC when they are made available in January of 2022.
- Step 1: Make sure all contractor bills have correct dates
- Go to Purchases > Bills. Select any bill to review the Date.
- For example, if you expect the bill amount to be included on your 2021 1099-NEC form, then the bill date should be within 2021. If it's in 2022, the bill will be reflected on the 2022 1099-NEC form.
- Step 2: Next, make sure the bill is Paid.
- If the bill is outstanding, check out this guide on adding and paying contractors for how to Record a Manual Payment. Make sure the bill payment is also dated correctly.