1099-NEC Forms and 1099-MISC Forms: What are the differences?

Share This Post

Table of Contents

1099-NEC and 1099-MISC are both tax forms used to report non-employee compensation to the Internal Revenue Service (IRS). However, there are some key differences between the two forms.

What is a 1099-NEC Form Used For?

The 1099-NEC (Nonemployee Compensation) form is used to report payments made to non-employees for services rendered. This includes payments made to independent contractors, freelance workers, and other self-employed individuals. The form is used to report the total amount of income received from a single payer during the tax year.

The payer is required to file a copy of the form with the IRS and provide a copy to the recipient by January 31st of the following year. The recipient is then required to report the income on their tax return. It replaces the box 7 of the 1099-MISC form. It is typically used by businesses and organizations to report payments made to non-employees for services they provided during the year. The recipient of the form uses it to report their income for tax purposes.

What is a 1099-MISC Form Used For?

On the other hand, the 1099-MISC, also known as a “Miscellaneous Income” form, is used to report a variety of types of income, including non-employee compensation. This form is used to report any payments of $600 or more received from a single payer during the tax year in categories such as rent, prizes and awards, and other income.

A 1099-MISC form is used to report various types of income that are not covered by other specific 1099 forms. It also reports payment made to an attorney and payments made in the course of a trade or business to an individual, partnership, or estate.. The payer is required to file a copy of the form with the IRS and provide a copy to the recipient by January 31st of the following year. The recipient is then required to report the income on their tax return.

Some examples of individuals or entities that may receive payments reported on a 1099-MISC form include independent contractors, self-employed individuals, and rental property owners. It is typically used by businesses to report payments made to non-employees for services or rent. The recipient of the form uses it to report their income for tax purposes.

1099-nec form and 1099-misc form
Designers are often independent contractors who also use 1099 forms

What are the Differences Between 1099-MISC and 1099-NEC Forms?

One of the main differences between the two forms is that the 1099-NEC is used solely for reporting non-employee compensation, while the 1099-MISC is used for reporting a variety of types of income. You need to file a 1099-MISC if you paid at least $600 in rent, services, prizes and awards, other income payments, or medical and health care payments to a non-employee during the tax year.  Additionally, the 1099-NEC is a new form, introduced by the IRS for the tax year 2020, to replace the use of Box 7 on the 1099-MISC, which was previously used to report non-employee compensation.

Another key difference between the two forms is the due date for filing. The 1099-MISC is due to be filed by January 31st of the year following the tax year, while the 1099-NEC is due to be filed by January 31st of the year following the tax year.

Both forms are filed with the IRS and copies sent to the recipient, but 1099-NEC also needs to be filed with the State if the state has a specific requirement for it.

It’s important to note that the use of 1099-NEC is mandatory starting from the 2020 tax year. So, if you are paying non-employee compensation, you need to use 1099-NEC instead of 1099-MISC.

How Do You File 1099-MISC Forms and 1099-NEC Forms?

To file 1099-MISC and 1099-NEC forms, you must first obtain the necessary forms and information from the individuals or businesses that you made payments to during the year. This includes their name, address, and taxpayer identification number (such as a Social Security number for individuals or an Employer Identification Number for businesses). Once you have this information, you can use it to fill out the 1099-MISC or 1099-NEC forms.

You are required to file a copy of each form with the IRS and provide a copy to the recipient by January 31st of the following year. To file the forms with the IRS, you can use paper forms, which must be mailed, or electronic filing methods, such as the IRS’s Filing Information Returns Electronically (FIRE) system. If you choose to file electronically, you must do so by the end of March of the following year.

It’s important to note that you are only required to file a 1099-MISC or 1099-NEC if you have made payments of $600 or more to a person or business during the year.

Here are some general instructions to get you started in filing a 1099-NEC and a 1099-MISC form:

1099-NEC:

  1. Obtain the recipient’s legal name and taxpayer identification number (TIN).
  2. Gather information on the amount of non-employee compensation paid to the recipient during the year.
  3. Obtain a copy of the 1099-NEC form and any necessary state forms from the IRS website or from a tax forms provider.
  4. Fill in the recipient’s legal name and TIN on the form.
  5. Enter the amount of non-employee compensation paid to the recipient in the appropriate box.
  6. Check the form for accuracy and completeness.
  7. File the form with the IRS by the end of January and provide a copy to the recipient by the end of January.

1099-MISC:

  1. Obtain the recipient’s legal name and taxpayer identification number (TIN).
  2. Gather information on the amount of miscellaneous income paid to the recipient during the year.
  3. Obtain a copy of the 1099-MISC form and any necessary state forms from the IRS website or from a tax forms provider.
  4. Fill in the recipient’s legal name and TIN on the form.
  5. Enter the amount of miscellaneous income paid to the recipient in the appropriate box.
  6. Check the form for accuracy and completeness.
  7. File the form with the IRS by the end of January and provide a copy to the recipient by the end of January.

Note: These are general instructions, and it’s important to consult the IRS guidelines and instructions for more detailed information and to ensure compliance with tax laws and regulations.

Tools to Help File Your Forms

There are several tools available to help file 1099-MISC and 1099-NEC forms, including:

  1. IRS Free File: This is a free online service provided by the IRS that allows taxpayers to file their 1099 forms electronically.
  2. Commercial tax preparation software: There are several commercial tax preparation software programs available that can help you file your 1099 forms, such as TurboTax, H&R Block, and TaxAct.
  3. Online filing services: There are also several online filing services, such as eFile4Biz and Express1099, that can help you file your 1099 forms electronically.
  4. Accountant or tax preparer: You can also work with an accountant or tax preparer who can help you file your 1099 forms.

It’s important to note that depending on how many 1099s you need to file, some of these options may not be the best fit. It’s always a good idea to research and compare different options to find the one that best suits your needs.

Which Form Should You File?

To determine whether to file a 1099-MISC or a 1099-NEC form, you should consider the following:

  1. Type of payment: If the payment you made was for non-employee compensation, such as freelance work or contract services, you should file a 1099-NEC form.
  2. Amount of payment: If you paid a non-employee at least $600 during the tax year for services or other income, you are required to file a 1099 form, either a 1099-MISC or a 1099-NEC
  3. Deadline: The deadline for issuing 1099-MISC forms to recipients is January 31st of the year following the tax year, while the deadline for 1099-NEC forms is January 31st of the year following the tax year.
  4. Reporting threshold: You need to file a 1099-MISC if you paid at least $600 in rent, services, prizes and awards, other income payments, or medical and health care payments to a non-employee during the tax year. The 1099-NEC form is just for non-employee compensation.
  5. Tax year : Starting from tax year 2020, the use of 1099-NEC form is mandatory for non-employee compensation payments. So, if you are paying non-employee compensation, you need to use 1099-NEC instead of 1099-MISC.

It’s important to consult with a tax professional or use tax software to determine the correct form to file and ensure that you are in compliance with the IRS regulations.

What happens if You mix up 1099-NEC and 1099-MISC Forms?

If you mix up 1099-NEC and 1099-MISC forms, it could result in the incorrect reporting of income to the IRS and the recipient. This could lead to penalties and fines for the person or business responsible for issuing the forms. Additionally, the recipient may have to pay additional taxes if the information on their form is incorrect. It is important to use the correct form for the specific type of income being reported.

More Independence Means More Responsibility

The 1099-NEC and 1099-MISC are both forms used to report non-employee compensation to the IRS, but they have some key differences. The 1099-NEC is used solely for reporting non-employee compensation, while the 1099-MISC is used for reporting a variety of types of income. Additionally, the 1099-NEC is a new form introduced by the IRS for the tax year 2020 to replace the use of Box 7 on the 1099-MISC, which was previously used to report non-employee compensation. Businesses and individuals should ensure that they use the correct form and file it by the appropriate due date.

Being a 1099 contractor means more freedom but it also means having to manage more of your own business, including the nitty gritty paperwork. Taking a little extra time to learn about all the different forms and tax codes that apply to you will save you a great deal of trouble in the long run especially if you plan on being an independent contractor long term. Although the forms seem endless, with a little time and practice eventually these tasks will be second nature.

More To Explore