While you’re likely familiar with various forms from the IRS already, there’s another tax form that should be on your radar: Form 1099-NEC.
Form 1099-NEC, non-employee compensation, was revived as of the 2020 tax year. Now, instead of reporting compensation that you paid to non-employees (like freelancers and independent contractors) on Form 1099-MISC, that information gets reported on Form 1099-NEC.
What is Form 1099-NEC?
The IRS has a long list of informational returns that it requires businesses to file. Part of that list includes 1099 forms, which detail any income a person receives other than their wages, salary or tips (which are reported on a W-2).
Form 1099-NEC is used to report non-employee compensation that you paid during the year. So that freelancer that you hired for a few projects or that contractor that you have working in marketing are going to need to receive a 1099-NEC this year.
Who needs to file Form 1099-NEC?
You’ll need to file Form 1099-NEC if you paid someone at least $600 during the year who meets these criteria:
They are not your employee.
You made payment for services in the course of your business — in other words, this wasn’t a personal payment.
They are an individual, partnership or estate. In a few cases, payments made to corporations will also need to be included.
These payments that you made can include commissions, fees, prizes and awards for services. Basically, if in the past you filed form 1099-MISC for someone you paid for their business services, you’ll be filing Form 1099-NEC instead this year.
There are some exceptions to this. You won’t include any employee payments, like wages paid to employees or business travel allowances paid to employees. These payments may need to be reported on Form W-2.
Other exceptions include:
Payments to most corporations, both S-corporations and C-corporations. You would only include payments to corporations if it was for fish purchases for cash, attorney’s fees or payments made by a federal executive agency.
Payments for merchandise, telegrams, telephone, freight, storage and similar items.
Rent payments made to real estate agents or property managers.
Payments to a tax-exempt organization.
What’s included on Form 1099-NEC?
Form 1099-NEC is a fairly short form with multiple copies, similar to form 1099-MISC. The information included on Form 1099-NEC includes:
Payer’s information, including name, address and taxpayer identification number (TIN).
Recipient’s information, including name, address and TIN.
The total amount of non-employee compensation paid.
Any federal or state income tax withheld.
The easiest way to get the personal information that you need from a non-employee is to have them fill out a W-9. With that and the information from your accounting records, you should have enough information to fill out the 1099-NEC.
Just like with the 1099-MISC, there are multiple copies of the form that need to be distributed. These copies are:
Copy A goes to the IRS.
Copy 1 is sent to your state tax department.
Copy B is sent to the recipient.
Copy 2 is also sent to the recipient.
Copy C is kept for your own business tax records.
What is reported on Form 1099-MISC?
Now that Form 1099-NEC is in use again, Form 1099-MISC won’t be used to report nonemployee compensation. It still has a role in your reporting, though. You’ll use Form 1090-MISC to report if you’ve paid anyone at least $10 in royalties, or $600 or more in:
Prizes and awards.
Other income payments.
Generally, the cash paid from a notional principal contract to an individual, partnership or estate.
Any fishing boat proceeds.
Medical and health care payments.
Crop insurance proceeds.
Payments to an attorney.
Section 409A deferrals.
Nonqualified deferred compensation.
Now that non-employee compensation isn’t included on the 1099-MISC anymore, the boxes have been re-arranged. Box seven, which used to include non-employee compensation, now is used for direct sales made of more than $5,000. Things on the form will look a little different, but it hasn’t changed substantially.
When is Form 1099-NEC due?
The due date for Form 1099-NEC is Jan. 31. You’ll need to send a copy of the form to both the recipient and the IRS by this date. Like with other tax forms, if the due date falls on a weekend or holiday, you must file the form on the next business day.
Form 1099-MISC has a slightly different due date. You must provide a 1099-MISC to any recipients by Jan. 31, but you don’t need to file it with the IRS until Feb. 28, or March 31 if filing electronically.
You can request copies of official 1099 forms from the IRS website, and you'll receive them by mail. If you file electronically, you can use the IRS Filing Information Returns Electronically (FIRE) system. Both the 1099-NEC and the 1099-MISC can be filed either electronically or by paper form.
A version of this article was first published on Fundera, a subsidiary of NerdWallet