1099-NEC 2024: What Every Small Business Needs to Know

If your small business works with freelancers or independent contractors, understanding the changes to the 1099-NEC form for 2024 is crucial. These updates will affect how businesses report payments to contractors and comply with IRS regulations. By staying informed, you can avoid penalties and ensure that your business runs smoothly during tax season.

Let’s break down the 2024 updates, explain why they matter, and show you how QuickBooks can make managing contractor payments easier.

What Is the 1099-NEC Form?

The 1099-NEC form is used to report payments made to independent contractors or freelancers. If you pay a contractor $600 or more in a given year, you are required to report those payments to the IRS using this form. The IRS reintroduced the 1099-NEC in 2020 to replace the 1099-MISC for nonemployee compensation. This change allows for clearer reporting of contractor payments and ensures that businesses and contractors remain compliant with tax laws.

Failure to submit a 1099-NEC can result in penalties, so it’s essential to stay on top of these reporting requirements.

For more information, you can visit the official IRS 1099-NEC page.

Key Changes to the 1099-NEC in 2024

There are several significant changes to the 1099-NEC form for 2024 that small businesses should be aware of:

• Expanded Reporting Thresholds: The reporting threshold remains at $600, but more contractors may now fall under these requirements due to expanded reporting rules.
• State-Specific Regulations: Several states have implemented their own reporting rules that differ from federal requirements. If your business works with contractors across state lines, you’ll need to ensure compliance with both federal and state regulations.
• Mandatory E-Filing: The IRS now requires businesses that file 10 or more 1099-NEC forms to e-file. This mandate is designed to streamline the reporting process and reduce errors. If your business hasn’t yet transitioned to e-filing, 2024 is the year to make the switch.

For further details on how to file electronically, check the IRS E-File page.

Why These Changes Matter to Small Businesses

Staying compliant with the new 1099-NEC regulations is vital for any business that hires contractors. The IRS imposes penalties for failing to submit required forms or for filing them late, and these fines can add up quickly. However, beyond the potential for penalties, staying compliant also ensures a smoother tax season for both you and your contractors.

Example:
Let’s say you run a digital marketing agency and hire a freelance graphic designer. In 2023, you paid the freelancer $500, which might not have triggered the need for a 1099-NEC form. However, under the 2024 regulations, even this smaller payment may require reporting. Failing to file the 1099-NEC could result in penalties and could also affect the contractor’s tax filing process.

By complying with these updated rules, you show professionalism, maintain good relationships with your contractors, and avoid the headaches that come with IRS fines.

How QuickBooks Simplifies 1099-NEC Reporting

Fortunately, QuickBooks simplifies the entire process of managing 1099-NEC reporting, helping you stay compliant with the IRS and your contractors receive accurate forms.

Here’s how QuickBooks can help:

• Automatic Payment Tracking: QuickBooks tracks payments to contractors throughout the year, so you don’t have to manually record every transaction. This feature ensures that by the end of the year, you have an accurate record of all contractor payments.
• Generate 1099-NEC Forms Easily: When tax season arrives, QuickBooks can generate 1099-NEC forms with just a few clicks. The platform uses the payment data you’ve already entered, eliminating the need for manual data entry.
• E-Filing for IRS Compliance: With the IRS now requiring e-filing for businesses issuing 10 or more 1099 forms, QuickBooks makes this easy. You can e-file directly through the platform, ensuring that your forms are submitted on time and accurately.
• State-Specific Compliance: If you work with contractors in multiple states, QuickBooks helps you stay compliant with varying state regulations. It tracks the different rules for each state and allows you to file all the necessary forms in one place.

For additional resources on how QuickBooks supports tax compliance, visit the QuickBooks support page.

Steps to Stay Compliant with the 1099-NEC Changes in 2024

To stay ahead of the 2024 changes and avoid penalties, follow these steps:

1. Review Payments Regularly: Make a habit of reviewing contractor payments quarterly rather than waiting until year-end. This allows you to track payments accurately and ensures you’re prepared when tax season arrives.
2. Check for IRS Updates: The IRS updates its rules periodically, so it’s important to stay informed. Visit the IRS website to stay up to date with the latest requirements.
3. Ensure Contractor Information is Current: Keeping updated W-9 forms for each contractor ensures you have the correct tax information on file. This simplifies the process of generating accurate 1099-NEC forms.
4. Transition to E-Filing: If your business isn’t already e-filing, make the switch now. The IRS requires businesses with 10 or more forms to file electronically, and QuickBooks makes this transition seamless.
5. Set Reminders for Filing Deadlines: The deadline for filing 1099-NEC forms with the IRS is January 31. Using tools like QuickBooks can help you stay on track by sending reminders and alerts when deadlines approach.

How Perlinger Consulting Can Help You Stay Compliant

Navigating the complexities of tax compliance can feel overwhelming, but you don’t have to do it alone as we partner with certified tax professionals. At Perlinger Consulting, we specialize in helping small businesses like yours stay on top of industry changes.

Here’s how we can support your business:

• QuickBooks Setup and Training: We’ll guide you through setting up QuickBooks to track contractor payments and generate 1099-NEC forms efficiently. Our team ensures that you understand how to manage payments and reporting.
• Discounted QuickBooks Subscriptions: We offer discounted QuickBooks subscriptions to help you save money on the tools you need to keep your business compliant.
• Ongoing Support: Our team is available year-round to provide assistance, answer your questions, and help you remain compliant.

Final Thoughts: Prepare for the 2024 1099-NEC Changes

The 2024 updates to the 1099-NEC form are important for any business working with contractors or freelancers. By understanding these changes and using tools like QuickBooks, you can avoid penalties, streamline your tax reporting, and ensure that both you and your contractors remain compliant.

Need help navigating these changes? Contact Perlinger Consulting today, and we’ll make sure your business is ready for the 2024 tax season.

Disclaimer: This article is intended for educational purposes only and provides general information about accounting, bookkeeping and. For specific advice, please consult a qualified professional.