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Form 1099-NEC: An Overview

Updated on September 13 - 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 1099 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 Form 1099 NEC?
  2. Who Needs to File Form 1099-NEC?
  3. What Information Is Reported on Form 1099-NEC?
  4. Importance of 1099 NEC for independent contractors and Businesses
  5. How Does Form 1099-NEC Differ from 1099-MISC and 1099-K?
  6. When is Form 1099-NEC due?
  7. What are the penalty for not filing Form 1099-NEC on-time?
  8. What are the different copies of Form 1099-NEC?
  9. How to file Form 1099-NEC for 2023?

1. What is Form 1099 NEC?

IRS Form 1099-NEC is used to report compensation of $600 or more made to non-employees for the services they provided during the tax year. Non-employees include freelancers, independent contractors, self-employed individuals, vendors, etc.

Until the 2019 tax year, 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.

2. Who Needs to File Form 1099-NEC?

The Form 1099-NEC should be filed by businesses and individuals for payments made under the following conditions:

  • Payments made to someone who is not an employee.
  • Payments made for 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.

The form serves as a means of reporting these payments to both the IRS and the recipients, ensuring accurate income reporting and taxation.

3. What Information Is Reported on Form 1099-NEC?

Form 1099-NEC contains essential details about the payments made to 1099 contractors. The information reported on this form includes:

  • The payer's and recipient's identifying information (name, address, and taxpayer identification numbers)
  • Total nonemployee compensation paid during the tax year
  • Any federal income tax withheld (if applicable)
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4. Importance of 1099 NEC for Independent Contractors and Businesses

For Businesses:

Businesses and other entities that hire independent contractors also benefit from Form 1099-NEC. By filing this
1099 form, businesses fulfill their legal obligation to report payments made to nonemployees. This documentation contributes to transparent financial reporting and assists in avoiding potential penalties for non-compliance.

Form 1099-NEC ensures that businesses accurately account for their expenditures while providing the IRS with necessary information for monitoring tax compliance.

For Independent Contractors:

Form 1099-NEC holds significant importance for independent contractors. It serves as an official record of the income they have earned throughout the year.

This form helps freelancers and self-employed individuals accurately report their earnings to the IRS, ensuring that they meet their tax obligations.

5. How Does Form 1099-NEC Differ from 1099-MISC
and 1099-K?

Generally, Form 1099-NEC is filed by employers who have paid compensation to non-employees such as contractors, gig workers, etc.

On the other hand, Form 1099-MISC is filed by businesses or individuals to report other miscellaneous payments such as rent, medical and health care payments, etc.

While both these forms are filed directly by the payers themselves (businesses or individuals), Form 1099-K is filed by payment processors such as payment card companies and third-party networks to report the payments made using credit cards, debit cards, stored value cards, and payment apps.

Learn more about the differences between 1099-NEC, 1099-MISC, and 1099-K.

6. When is Form 1099-NEC 2023 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 31 2024.

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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7. What are the penalty for not filing Form 1099-NEC on-time?

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.

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8. What are the different copies of Form 1099-NEC?

There are various copies of the 1099-NEC, each serving a different purpose. Here are different copies of 1099-NEC
and its purpose.

Payer Copies Recipient Copies

Copy A

Should be filed with the IRS

Copy B

Should be furnished to the recipients.

Copy 1

To be filed with the state agencies. (Only if required)

Copy 2

To be given to recipients to file with their state income tax return.

Copy C

Copy for payers to maintain in the business records.

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9. How to file Form 1099-NEC for 2023?

File 1099-NEC electronically for 2023 with the IRS, and the required state using TaxBandits, an IRS-authorized e-file provider supporting e-filing for all 1099 Form, W2, 94x, and ACA Forms.

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.

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