Business FinancesQuestion 627 of 690
A general contractor pays an unincorporated subcontractor $1,200 over the calendar year for services. For federal and California tax reporting, the contractor must issue which form to the subcontractor?
a.Form W-2, by January 31
b.Form 1099-NEC for nonemployee compensation, because total payments to the unincorporated subcontractor for services equal $600 or more
c.Form 1099-MISC, because the subcontractor is a sole proprietor
d.No form is required because the subcontractor is licensed by the CSLB
Explanation
Under IRC §6041/§6041A (mirrored by Rev. & Tax Code §18631), payments of $600 or more in a calendar year to a non-corporate service provider must be reported on Form 1099-NEC (Nonemployee Compensation), which since tax year 2020 replaced Box 7 of the 1099-MISC for service compensation. W-2 is for employees, not subcontractors. 1099-MISC is still used for rents, royalties, and other items but no longer for nonemployee compensation. CSLB licensure does not exempt the payer from federal/state information reporting; only payments to corporations (other than legal/medical) are generally exempt.
Law Reference: Internal Revenue Code §6041 (CA Rev. & Tax §18631)Practice all 690 questions free — no signup required.
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