Confused about 1099-NEC with amounts in both Box 1 and Box 7? Help!

So if the client DID actually withhold state taxes, wouldn't the person have already received less money throughout the year? Like the amount in Box 1 would be the after-withholding amount? I'm confused about how this all works.

Thanks for explaining this! Yes, I received the full amount that's listed in Box 1, with no deductions or withholdings. They definitely didn't withhold any state taxes from my payments. I'll reach out to the client and ask them to issue a corrected 1099-NEC. In the meantime, should I go ahead and file with what I have, or wait for the corrected form? My concern is that if I file correctly (ignoring Box 7), but they don't fix their mistake, will there be a mismatch that causes problems with the IRS?

The amount in Box 1 is the gross payment before any withholdings. If they withheld state taxes, you would have received a check or direct deposit for the Box 1 amount minus the Box 7 amount. Since you received the full amount shown in Box 1, this confirms they didn't withhold anything. I would recommend waiting for the corrected form before filing. If there's a mismatch between what you report and what the IRS receives from your client, it could trigger a notice or even an audit. It's better to have everything match up correctly from the start. If your client is unable or unwilling to provide a corrected form, you should file accurately based on what actually happened (no state tax withholding) and be prepared to explain the discrepancy if contacted by the IRS.

Does taxr.ai actually help with getting the forms corrected or just tells you what's wrong? Because I've had clients mess up forms before and the nightmare is getting them to actually fix it.

I'm skeptical about these kinds of services. How does it actually work? Like do you have to upload your personal tax docs to some random website? Seems risky from a privacy standpoint.

It doesn't directly contact your client, but it creates a detailed explanation of the errors that you can forward to them. The explanation was professional enough that my client took it seriously and got things fixed right away. The template letter it generates points out exactly what boxes need correction and why. Regarding privacy concerns, I was worried about that too. They use bank-level encryption and don't store your documents after analysis. You can also redact sensitive info before uploading. I felt pretty comfortable with their security measures, and the peace of mind was worth it for me since I had several form issues to sort out.

Wait, I'm confused. How exactly does this work? Does this service somehow get you to the front of the IRS phone queue? That sounds too good to be true.

Yeah right. I've been calling the IRS for THREE WEEKS trying to fix a similar issue. No way some random service can get through when literally millions of people are calling. This sounds like a scam to get desperate people's money during tax season.

It's not about getting to the "front of the line" - they use an automated system that continuously calls the IRS using the optimal calling patterns they've figured out through data analysis. When they secure a place in the queue, they transfer the call to you. It's basically doing what you'd do if you had unlimited phones and time. No, it's not a scam. I was skeptical too, but it worked exactly as advertised. Think about it this way - the IRS actually answers calls, just not the millions that come in each day. This service just handles the frustrating part of getting through the initial barriers. When I got the call back, I was connected to a real IRS agent who helped resolve my issue with the incorrect 1099 reporting.

Wait, I thought Box 7 WAS for state withholding? Now I'm even more confused. Can someone clarify what this box is actually for?

You're right to be confused because there's been a change in the forms. On the OLD 1099-MISC, Box 7 was for nonemployee compensation. When they created the new 1099-NEC form specifically for nonemployee compensation, they reused the box numbers but for different purposes. On the 1099-NEC, Box 7 is for state income - meaning the portion of the Box 1 amount that's attributable to work performed in that state. This is mainly relevant if you worked in multiple states. It's NOT for withholding amounts. State tax withholding (if any) would be reported in Box 5 of the 1099-NEC, not Box 7. That's likely why the federal refund changed (the software misinterpreted it) but the state refund didn't.

That's a really good point and makes me feel better about approaching my client. I'll definitely be gentle when I ask for the correction since it seems like an honest mistake. Thanks for sharing the perspective from the other side!