IRS Form 1099-MISC vs Form 1099-NEC

1. What is Form 1099-MISC?

Form 1099-MISC is a variant of Form 1099, used specifically to report miscellaneous income. This return is filed by organizations for each independent contractor, freelancer, or non-employee. This form reports the miscellaneous payments made to this person in a tax year.

2. What is the purpose of the new Form 1099 NEC?

The IRS has introduced Form 1099-NEC for tax year 2020. The arrival of this form means that the non-employee compensation doesn’t have to be reported using Form 1099-MISC anymore.

Form 1099-NEC is a tax return used by businesses to report non-employee compensation payments made during the tax year to the IRS. Any payments made to an independent contractor, freelancer, or non-employee are considered as non-employee compensation.

3. Why did the IRS create Form 1099-NEC?

The deadline to file Form 1099-MISC to report non-employee compensation and miscellaneous income was on February 28. The Protecting Americans from Task Hikes (PATH) act changed the deadline to file Form 1099-MISC for reporting non-employee compensation to January 31.

To clear up the deadline confusion and to separate non-employee expenses, the IRS introduced 1099-NEC.

4. What’s the difference between Form 1099-MISC vs NEC?

The non-employee compensation is usually reported on Form 1099-MISC Box 7. The arrival of Form 1099-NEC means that this information no longer has to be reported in Form 1099-MISC. Businesses can now use Form 1099-NEC to report non-employee compensation exclusively.

The IRS has now made two forms available, Form 1099-NEC, to report non-employee compensation, and Form 1099-MISC, to report other miscellaneous income.

Form 1099-MISC should be filed by business to report the following information:

• Rents.
• Royalties.
• Fishing boat proceedings.
• Medical and Healthcare payment.
• Payments made instead of dividends or interest.
• Payments made to an attorney.
• Crop insurance proceedings.
• Cash paid from a notional principal contract to an individual, partnership, or estate.

Form 1099-NEC should be filed by businesses to report the following information:

• Fees.
• Commissions.
• Prizes.
• Awards.
• Any other form of compensation.

You must file both these returns only if you made a payment of $600 or more. However, you must file Form 1099-MISC if you made a payment of at least $10 royalties or payments instead of dividends or interest.

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