What is Form 1099-NEC?
Form 1099-NEC (Nonemployee Compensation) reports what a business paid to an independent contractor during the year. Unlike a W-2 employee, a contractor has no taxes withheld — they are responsible for their own self-employment tax and estimated payments.
Businesses must send a 1099-NEC to each contractor paid $600 or more by January 31. Misclassifying an employee as a contractor to avoid payroll taxes is a common and costly compliance mistake.
In practice
A company pays a freelance designer $4,000 over the year. It issues a 1099-NEC in January; no FICA or income tax was withheld, so the designer reports and pays those taxes themselves.