IRS Form 1099-MISC
vs Form 1099-NEC

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IRS Form 1099 MISC vs NEC - Explained

Updated on August 29, 2022 - 10:30 AM by Admin, TaxBandits

Non-employee compensation doesn’t have to be reported in Form 1099-MISC any longer. Filers can now use Form 1099-NEC to report non-employee compensations to the IRS. This return has to be filed for each non-employee, if the business has paid them $600 or more in a tax year.

In this article, we cover the following topics:

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.

TaxBandits is the #1 IRS authorized e-file provider on the market, helping you file your tax returns easily. We support both 1099-MISC and 1099-NEC. Start e-filing both these returns with TaxBandits now.