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?
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:
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.
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.
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:
- 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.