What is Form 1099 NEC?

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Form 1099 NEC is now used for reporting compensation paid for non-employees. It was constituted in 2020. And some of the things which you previously include in 1099-MISC are now filled in using IRS Form 1099-NEC.

In this article we will explore the similarities and differences between form 1099-NEC and 1099-MISC, who needs to fill in what and how to file it.

Who Needs to File Form 1099-NEC?

If you already know what 1099’s are for, there’s a new variation of it you probably need to be familiar with. Form 1099-NEC, non employee compensation was given prominence in 2020. Instead of reporting compensation you pay to non employees like freelancers and independent contractors on Form 1099-MISC, that information now gets reported on Form 1099-NEC. You need to file Form 1099-NEC if you paid someone at least $600 during the year who meets this criteria.

1. You paid them but they are not your employee

2. Your payment is for services inside your business so it was not a presonal payment.

3. They are individuals, partners or an estate. In some cases corporation payments are required.

These payments typically include the following:

  • Commissions
  • Fees
  • Prizes
  • Awards
If, in the past you filed form 1099-MISC for someone you paid them for, you’re mostly going to have to file Form 1099-NEC instead this year.

How to Fill Out Form 1099-NEC

Here are the important parts of a 1099-NEC form.

  • Payer’s information
  • Recipient’s information
  • Non-employee compensation amount
  • Federal income tax withheld
  • State information

Information about the payer and payee information includes their name, address, and your taxpayer ID number.

First box:

Reports the sum total of non-employee compensation received for a given year.

Second box:

You check this if you sold a sum total of $5000 or more. You don’t report the whole amount but you include it in your Schedule C.

Fourth box:

Federal income taxes from a backup witholding notice.

Fifth box:

State tax witheld while 6th box shows the state identification number.

Seventh box:

The total state income of the non-employee for the year.

What are the Exceptions for Form 1099-NEC?

There are certain exceptions to 1099-NEC. You will not include any employee payments such as traditional employee payments or business travel allowances. These payments are included on a W-2.

Other exceptions include:

Payments to S and C corporations, you need only to include payments to corporations if it was for cash, attorney’s fees or payments made by a federal executive agency.

Rent payments to real estate agents or property managers

Payments made to tax-exempt organizations

It’s often important to get personal information from a non employee contractor through getting them to fill out a W-9. With that and the information from accounting, you can fill out your 1099-NEC.

 

What is the Difference between Form 1099-NEC vs Form 1099-MISC?


Since form 1099 is in use again, Form 1099 MISC won’t be used to report nonemployee compensation anymore.

1099-MISC though still has a role to fill in your reporting. However 1099-MISC is used if you’ve paid anyone $10 in royalties or $600 for the following amounts:

  • Rents
  • Prizes and awards
  • Other income payments
  • Cash paid from a principal contract to an individual, partnership or an estate
  • Any fishing boat proceeds
  • Medical and healthcare payments
  • Crop insurnace proceeds
  • Payments to an attorney
    Section 409A deferrals
  • Non-qualified deferred compensation

Now that non-employee compensation isn’t included on 1099-MISC anymore, some of the boxes are re-arranged. Box seven for example is now used for direct sales which go above $5000. Other areas on the form will look a little different, but it has not changed significantly.

When should I submit 1099-NEC?

The due date for 1099-NEC is Jan. 31, you should send a copy of the form to the recipient and the IRS. If this falls on a holiday, you must file the form on the next business day. Form 1099-MISC has a variance in it’s due date. You must give 1099-MISC to your recipients in Jan. 31 but you won’t need to file it until Feb. 28 or March 31 if you file electronically. You can request for copies of official 1099 forms from the IRS website. And you can receive them by mail. If you file electronically you can use their Filing Information Resturns system and the 1099-MISC has the option of filing electronically or through paper.