As per the IRS, a payment is considered a nonemployee compensation if one of the following conditions met:
- The payer has made payment to someone who is not their employee or an individual, partnership, estate, or corporation
- The payer has made payment for services in the course of business or trade
- The payer has made payment totaling at $600 in the calendar year
Note: If you have withheld federal income tax based on backup withholding from a nonemployee, you must file 1099-NEC for them, even if you haven’t paid $600 in a year.
The nonemployee compensation may include the following payments:
- Commissions (including payments made to nonemployee salespeople)
- Prizes and awards for the services rendered by a nonemployee
- Fish purchases for cash
- Professional service fees paid to attorneys
- Any other form of compensation for services performed for your trade or business by a nonemployee.
Form 1099-NEC must be filed only if you are a payer in a business or trade for profit. DO NOT file Form 1099-NEC to report personal payments.