Form 1099-NEC: An Overview
Updated on January 27, 2023 - 10:30 AM by Admin, TaxBandits
The IRS periodically updates and makes changes to the available 1099 tax forms. One of the most notable updates in recent years is the re-introduction of Form 1099-NEC. This form was used by the IRS in the 1980s and then retired for decades. The IRS brought this form back for the 2020 tax year and beyond. At the time Form 1099-MISC was used to report non-employee compensation, the form had different deadlines depending on the type of payment being reported and this was confusing for taxpayers. The solution was to report all non-employee compensation on Form 1099-NEC.
Table of Content:
1. What is IRS Form 1099 NEC?
IRS Form 1099-NEC is used to report non-employee compensation. Any payments made of $600 or more to an independent contractor or a vendor must be reported on Form 1099-NEC.
The payments may include:
- Fish purchases for cash
- Any other form of compensation for services performed for your trade or business by an individual who is not your employee.
Until the previous tax year 2019, nonemployee compensation was reported on Form 1099-MISC in Box 7. Starting in 2020, it should be reported separately on Form 1099-NEC.
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Why do the IRS re-launched this Form 1099-NEC?
Actually, the 1099-NEC is not a new form. It was an active form until 1982, and now it has returned to the spotlight after the tax year 2020.
The IRS relaunched 1099-NEC because of the confusion in the deadline to file 1099-MISC with nonemployee compensation.
Until 2015, the deadline to file 1099 MISC with nonemployee compensation and other miscellaneous payments was February 28.
In 2015, the introduction of the Protecting Americans from Tax Hikes Act (PATH Act) changed the deadline to January 31 for filing 1099-MISC with non-employee compensation specifically.
Prior to the tax year 2020, if payers used 1099-MISC for reporting miscellaneous payments, they had to submit it to the IRS on or before January 31. If 1099-MISC was used to report payments other than the non-employee compensation, it had to be submitted by February 28 if filing by paper and March 31 if filing electronically.
Two different deadlines for the same form confused many, including payers and vendors. In fact, the IRS considered the returns late if they were received after January 31.
To clear up this confusion, the IRS decided to relaunch Form 1099-NEC. This has given peace of mind to all payers and vendors and the IRS too.
As a result, payers can choose to file 1099 NEC or file 1099-MISC based on their reportable payments for the tax year beyond 2020.
Who is Required to File Form 1099-NEC?
Form 1099-NEC is required if the payment meets any of the following conditions:
- Payments made to some who is not an employee
- Payments made to services in the course of Trade or Business
- Payments made to an Individual, Partnership, Estate or Corporation
- Payments totaling $600 or more in a year
2. What are the different copies of Form 1099-NEC?
|Payer Copies||Recipient Copies|
Should be filed with the IRS
Should be furnished to the recipients.
To be filed with the state agencies. (Only if required)
To be given to recipients to file with their state income tax return.
Copy for payers to maintain in the business records.
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3. When is Form 1099-NEC due?
Form 1099-NEC is due to the IRS by January 31st of each year, regardless of your filing method (paper filing or e-filing). Recipient copies must also be distributed by January 31st.
If the 1099-NEC due date falls on a Federal holiday or weekend, the next business day will be the due date.
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4. How to file Form 1099-NEC?
Follow the simple steps below to File Form 1099 NEC.
Step 1: Create a free TaxBandits account
Step 2: Enter the Form 1099 NEC Information
Step 3: Review the Form summary
Step 4: Transmit it to the IRS
If you have opted-in to postal mailing or online access services, TaxBandits will distribute copies to your recipients on your behalf.
5. Is there a penalty for not filing 1099-NEC?
Yes. The IRS will likely impose penalties for not filing the 1099-NEC on time. Also, a penalty will be imposed if the reported information was incorrect. The IRS maintains the same penalty and interest rate for all information returns including 1099-NEC. The penalty rate starts from $50 per return and can be as high as $550 per return.
Avoid being penlized by the IRS and file 1099-NEC on time and with right information.