IRS Form 1099-MISC Box 7 (Non-Employee Compensation) Basics

Taxseer provides form 1099 MISC online filing options to the filers through the online forms that mimic the paper forms. Filers used to performing paper filing of form 1099 MISC with IRS find the Taxseer online editable forms very easy to use and they rarely have any confusion during e-filing. We also provide the e-file of the extension form 8809 if the filer is not ready to file form 1099 MISC before the IRS due date. This blog provides the critical information that the filer must know before they e-file form 1099-Misc NEC.

What is Non-employee Compensation?

1099-MISC NEC applies to the self-employed professionals and independent contractors who earn their income outside the usual employer-employee association and includes any payments related to fees & compensation for services performed as a non-employee for a business by an individual;  for prizes and winners of contest awarded by your business since the winners have to pay taxes on prizes; for any legal services provided directly to a payer, the service fees to an attorney; for fish purchases for cash;  for compensation to vendors for services, including payments to corporations provided by Federal executive agencies. You do not withhold taxes from the payment made to an independent contractor because they are not on your company’s payroll and so you don’t have to pay the employer contribution of the Federal Insurance Contributions Act (FICA) tax (made up of two separate taxes, Social Security and Medicare) and the independent contractor pays the self-employment tax.

How is the Non-Employee Compensation filing for IRS performed?

Non-Employee Compensation is filed with IRS through the Form 1099-MISC in Box 7 and it is subject to self-employment tax.  Any payment not subject to self-employment tax and not reported elsewhere on Form 1099-MISC must be reported in Box 3 – Other income.

Condition for entering 1099 MISC (box 7) as non-employee compensation

The general rules for classifying the non-employee compensation relates to any payment made to the recipients for $600 or more during the tax year; an individual who is not a direct employee; an independent contractor for the services in the course of your business; an individual, estate, partnership, or, in some cases, a corporation, etc.

Some examples of payments reported in Box 7

Payments reported in form 1099 Misc Box 7 include:

  • Professional service fees such as fees to attorneys, accountants, contractors, etc;
  • Payment for services including parts/materials used to perform the services;
  • Payments by attorneys to witnesses or experts in legal arbitration;
  • Commissions paid to non-employee that are subject to repayment but not repaid during the calendar year;
  • Taxable fringe benefits for non-employees;
  • Payments by a federal executive agency for services (vendors)
  • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish

What should not be reported in Box 7?

You should not report in Form 1009 Misc – Box 7 any payments related to rent, royalties, other income not subject to self-employment tax, interest, the cost of group-term life insurance paid on behalf of a former employee, Payments made to deceased employee in wages paid in the year after death, Expenses reimbursement paid to volunteers of non-profit organizations, Employee’s wages, travel allowance, bonus, prizes, etc.

Due date for 1099-MISC box 7

1099-MISC form with Box 7 should be filed by Jan 31 and the rest could be filed before March 31. Any e-Corrections can be done no later than Aug 31.

1099 Extension

If your company needs more time to file your 1009s, then you need to apply for an extension using Form 8809. There are two types of extensions:

  • Extension for filing 1099 forms with the IRS
  • Extension for delivering 1099 forms to recipients

If you plan to file Form 1099-MISC reporting non-employee compensation payments in Box 7, you must request an extension not later than January 31.

Penalty

The penalty varies from $30 to $100 per form ($500,000 maximum per year), depending on the delays made by the company to issue the form. For deliberate disregard to the requirements to provide a correct recipient/payee statement, the company may be subjected to a minimum penalty of $250 per statement with no maximum limit.

W-9 Management prior to 1099-MISC filing

Independent contractors need to complete Form W-9, Request for Taxpayer Identification Number, in order to fill out Form 1099-MISC when they begin working for you. Form W-9 captures information related to the contractor’s name, Taxpayer Identification Number (TIN), and address which is needed to complete form 1099-MISC.

About Taxseer

Taxseer is a leading IRS-authorized e-file service provider offering you the best cloud-based solutions to perform online filings of Forms 1099 series, W-2, ACA (1095-B & 1095-C), 2290, 8849, 8809 and many more. We provide Wizard-driven e-filing for guided and error-free submissions and extend the security, intelligence, availability, and agility of the tax solution on the cloud. SSL-encrypted connections are used for transferring sensitive information and to provide a very safe environment for clients. As part of our commitment to making e-filing easy and convenient, we are always available.

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