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I got 1099-NEC that reports box 1 income but no state income (box 7), is this possible or an error?

Personal Finance & Money Asked on May 3, 2021

My spouse did some work for Operation Bandana New Mexico last year, a nonprofit that makes face masks to donate to schools, etc. She got a 1099-NEC as expected with the income reported in box 1. However, this is the only box of the seven numbered boxes that have anything in them. Box 7 "State income" is blank, as are box 5 and box 6 (other state information).

This seems to indicate to me that none of this amount should be reported to the state (I reside in New Mexico) or is subject to paid taxes. Is this correct?

Is it possible to have a 1099-NEC this way? Is there something special about state income tax in New Mexico when contracting with a nonprofit? Is Operation Bandana New Mexico (which I believe is a state-funded or state-initiated thing in some way) special in some way? Or is this an error on my tax form? (The nonprofit used an outside accounting company to generate these tax documents, so at least it would seem professional accountants have put this together.)

2 Answers

First, you should understand that a 1099-NEC is what is known as an information return. It is filed to report information to the IRS, not to you. Your spouse received one because she was paid an amount as a contractor, but she is required to report all income, whether or not she receives a 1099 or any other form. The numbers on the form may or may not match reality, and the amount on it isn’t necessarily all taxable; you may have deductible business expenses. (This is a big difference between the 1099-NEC and the W-2: The W-2 does need to be correct, and if it is incorrect, it needs to be fixed.)

The state boxes on the form are generally used in cases where state income tax was withheld from the pay for some reason. You probably didn’t have any tax withheld from this pay, so it is normal for those boxes to be empty.

I’m not an expert on New Mexico income tax, but I would say that if you reside in New Mexico and you did this work in New Mexico, then the income will be taxable in New Mexico.

Correct answer by Ben Miller - Remember Monica on May 3, 2021

Box 7 indicates any income subject to state income taxes. That it is blank, does not necessarily mean that no income in your 1099-NEC is subject to state income taxes; it most likely means that no state income tax was withheld, so all the state related boxes should be empty. You still have to report this income in your state tax return, and the respective tax (if any) will be calculated then. I'm not familiar with New Mexico's income taxes, but if it is anything like most other states, your income on Box 1 will be taxed like any other income.

Answered by AxiomaticNexus on May 3, 2021

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