What is the difference between 1099 NEC and 1099 misc?
Before 2021, you either issued or received a 1099-MISC if you were a freelancer or your small business hired contract work.
The IRS has now developed Form 1099-NEC, a new form designed specifically for reporting income earned by independent contractors (formally defined as “non-employee compensation”). Here’s all you need to know if you work with independent contractors or undertake contracting work as a self-employed person.
What is Form 1099-NEC?
The 1099-NEC (preview here) is a new form for reporting non-employee remuneration, which is currently described as payments made on a contract basis to employees who are not on payroll to accomplish a project or assignment. All independent contractors, gig workers, or self-employed individuals whose payments were previously recorded in box 7 of a 1099-MISC form are included in this category.
The IRS has reintroduced Form 1099-NEC as the new way to report self-employment income instead of Form 1099-MISC, as traditionally used. This was done to help clarify the separate filing deadlines on Form 1099-MISC and the new 1099-NEC form, which will be used starting with the 2020 tax year.
A 1099-NEC form cannot be downloaded from the internet. You’ll need to obtain forms from the IRS website or use the FIRE system to file online.
Why did the IRS reintroduce 1099-NEC?
Before its reintroduction, the last time Form 1099-NEC was used was back in 1982. Since then, before tax year 2021, businesses typically filed Form 1099-MISC to report payments totaling $600 or more to a non-employee for certain payments from the trade or business. These payments generally represent nonemployee compensation and, up until now, would typically appear in box 7 of 1099-MISC.
To help clarify the separate filing deadlines when reporting different types of payments on Form 1099-MISC, the IRS decided to reintroduce Form 1099-NEC, which has a single filing deadline for all payments that use the form.
Who requires a Form 1099-NEC?
You must file Tax Form 1099-NEC if your company pays a contractor more than $600 in a tax year. If the independent contractor is a C corporation or an S corporation, however, a 1099-NEC is not necessary. The contractor’s Form W-9 contains this information.
Employees do not need to file a 1099-NEC. To report wages, tips, and other compensation paid throughout the tax year, all employees must submit a Form W-2. Employees who are misclassified as contractors face severe consequences. Before submitting a 1099-NEC, have a look at our blog post about the differences between the two.
Who requires a Form 1099-MISC?
If your business paid an individual or LLC at least $600 during the year in rent, legal settlements, prizes, or award-winnings, you are required to file a 1099-MISC.
Who files Form 1099-NEC?
If your business hired a contractor and paid them more than $600 in a year, it’s your responsibility to file a Form 1099-NEC with the IRS and send a copy to the contractor.
1099-NEC vs. 1099-MISC
Independent contractor revenue is now reported using the 1099-NEC form.
The 1099-MISC form, on the other hand, is still in use; it’s now used to report miscellaneous income like rent or payments to an attorney.
Contractor payments made in 2020 and after will be reported on the new form 1099-NEC, which will replace the 1099-MISC. The tax form 1099-NEC is due on January 31, the year following the tax year in question. The due date will be advanced to the next business day if January 31 does not fall on a business day. If you’re filing by paper, the filing form 1099-MISC is due March 1; if you’re filing online, it’s due March 31. The due date is shifted to the next business day if certain dates do not fall on a business day.
How to file Form 1099-NEC
There will be two copies of each Form 1099-NEC filled out with the same information: Copy A and Copy B.
If you paid more than $600 to an independent contractor throughout the year, you must record their total earnings. The IRS will receive Copy A, while the contractor will receive Copy B.
It is not your responsibility to file Form 1099-NEC if you are the independent contractor who receives Copy B. However, you should ask your customer for a copy of the form for your records. A Schedule C will be used to report all of your earnings.
