Form 1099-NEC & Handling Contractors in BambooHR® Payroll
What is the difference between 1099-NEC reportable and non-reportable wages, and how do I need to add these non-employees in BambooHR?
Purpose: To provide payroll admins with information on correctly reporting contractor wages through a Form 1099-NEC.
1099-NEC overview
Businesses use Form 1099-NEC (Nonemployee Compensation) to report payments made to non-employees. The Internal Revenue Service (IRS) defines these as individuals contracted per job/project, not fully employed by the company, and do not receive benefits.
Additionally, you can refer to the IRS guide on Form 1099-NEC for more information on nonemployee compensation.
What is NEC?
According to the IRS, if your company meets the following four payment conditions, you must generally report the payment as nonemployee compensation (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.
Why is this important for contracted non-employees?
When your contracted non-employee receives Form 1099-NEC, it typically means they are self-employed and claim their income and deductions on their Schedule C, which they use to calculate their net profits from self-employment. As a self-employed person, they are required to report all of their self-employment income.
Form 1099-NEC
1099-NEC corrections will not have a checkmark in the Corrected box at the top as the updated 1099-NEC will replace the previous, incorrect form in BambooHR.
Processing 1099-NECs through BambooHR Payroll
You have the option to choose whether or not you want BambooHR Payroll to create and send 1099-NECs to your contractors in Company Tax Settings. Make sure you set this up by September 30th to ensure we can process your 1099s on time in the new year. This helpful guide explains how to manage tax documents in BambooHR.
If you opt-in to have BambooHR Payroll process your 1099s, we will complete 1099-NECs for all contractors who received compensation during the current year, including those who received amounts less than $600. Ensure you take the following steps for our teams to serve your 1099 contractors:
1. Make sure the contractor has a profile set up in BambooHR. You can create a profile without giving them access to the account.
2. Navigate to the contractor’s profile and choose their Personal tab. Then, locate the SSN field and enter their 9-digit SSN. Our SSN field has authentications with valid SSNs only.
3. Add the contractor’s address. This is what BambooHR will use to mail out the 1099-NEC.
4. On the Job tab, make sure to update their Employment Status table to include an Independent Contractor (1099) Employee Tax Type. Please note that an employee will be stored as a W-2 employee regardless of your selections unless the Employment Status = Contractor and the Employee Tax Type = Independent Contractor. You must be using our standard Contractor Employment Status. Custom Employment Statuses will register as W-2 regardless of the name you give them.
1099-NEC forms will be delivered to your contractors will receive their Form 1099-NECs by January 31 of the following year of the filing. We use the address listed on their Personal tab for mailing via USPS. All 1099-NECs will be available to your company in TRAXPayroll under Reports > Quarterly and Year End.
1099 extra pay types
When running payroll, there are only two available extra pay types you can use for your 1099 employees to ensure accurate 1099 reporting. They are as follows:
We are unable to create custom pay types that are non-reportable. Using custom pay types may result in inaccurate reporting and necessary corrections.
Fees for 1099-NECs
We calculate the fee for processing the 1099-NECs as a $25 base fee plus $12 per the total number of contractors. We will collect the fee on the last payroll at the end of the year before processing the 1099-NEC.
Late request for 1099-NECs
Missed the September 30th deadline to process your 1099s by the new year? No sweat. If you wish to have additional 1099-NECs created after the September 30th deadline, you can still request this service before December 31st of the filing year. There is no additional late fee unless a wire is required, which is $35. BambooHR will deliver the 1099-NEC forms by mail to your contractors no later than January 31st of the following year of the filing. Allow for 5-7 business days for processing and mailing. We will collect the payment from the bank account you have on file.
Please also keep in mind that any requests submitted after December 31st of the filing year will not be fulfilled, and your company will be responsible for mailing the 1099-NECs.