Form 1099-NEC: An Overview

Updated on September 16, 2022 - 10:30 AM by Admin, TaxBandits

We have seen many challenges and changes that we never could have predicted. The IRS is not the exception. Many IRS forms have been updated several times than before. In addition to the frequent updates and revisions, a new Form 1099-NEC has been introduced on 2020. The IRS did this to eliminate the clash of deadlines in filing the Form 1099-MISC for different types of payments.

Table of Content:

1. What is IRS Form 1099 NEC?

IRS Form 1099-NEC is a form 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:

  • Fees
  • Commissions
  • Prizes
  • Awards
  • 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.

IRS Update: The IRS has made some changes to Form 1099-NEC for 2021 tax year. Learn More.

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 returning 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 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, 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 the 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-MISC or 1099-NEC based on their reportable payments for the tax year beyond 2020.

Form 1099-Nec

When a Form 1099-NEC must be reported?

Form 1099-NEC must be reported if any of the following conditions are met:

  • Payments made to some who is not an employee
  • Payments made to services in the case of Trade or Business
  • Payments made to an individual, partnership, estate or corporation
  • Payments made $600 or more in a year

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

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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3. When is Form 1099-NEC due?

Form 1099-NEC is due by January 31st every year irrespective of filing methods (paper or electronic filing). Also, the recipient copy deadline falls on the same January 31.

If the 1099-NEC due date falls on any Federal holidays or weekend, the next business day will be the due date.

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4. How to file Form 1099-NEC?

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

Simply follow the steps below to file your Form 1099-NEC:

  • Step 1: Create a free TaxBandits account or Login If you have one already
  • Step 2: Enter Form Information
  • Step 3: Review Form Information
  • Step 4: E-file it with the IRS and State

If you have opted for postal mailing or online access, TaxBandits will deliver copies to your recipients on your behalf.

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5. Is there a penalty for not filing 1099-NEC?

Yes. IRS will impose penalties for not filing the 1099-NEC on-time. Also, the penalty will be imposed if the reported information was incorrect. The IRS maintains the same penalty and interest rate for all the information returns including 1099-NEC. Penalty rate starts from $50 per return and go up to $550 per return.

Know about the penalty rates for Form 1099-NEC under different condition.

Avoid being penlized by the IRS and file your 1099-NEC on-time and with right information. Get started with TaxBandits Today.