Most individuals are familiar with Form 1099-MISC, so what is this new Form 1099-NEC? We’re here to outline the differences and give you the information you need to determine which forms to file.
What is the Form 1099-NEC?
Form 1099-NEC was reintroduced in 2020. It’s based on an older version of the form that hasn’t been used since 1982. Due to the reintroduction of Form 1099-NEC, there are some big changes to certain types of tax reporting.
This form is used to report nonemployee compensation amounts to the IRS. A nonemployee is defined as a person or business who is not employed by your company, such as independent contractors, freelancers, or outsourcing companies. Learn more about determining who should receive a Form 1099-NEC by navigating to our article “Who receives a Form 1099-NEC?”
Alternatively, if you need to report income amounts made by employees, then you should use Form W-2 instead.
Before tax year 2020, nonemployee compensation amounts were reported using box 7 of Form 1099-MISC. Since this is no longer the case, the role of Form 1099-MISC has shifted for use in other types of compensation.
This change helps to separate certain types of amounts that were previously reported on Form 1099-MISC and staggers the due dates for these forms 1099.
What changes were made to Form 1099-MISC?
Since the NEC amounts have been removed, the IRS has redesigned and updated the Form 1099-MISC. It is now used to report truly miscellaneous income. Some of the amounts have shifted to a new box, so be sure which box you should be completing!
- Box 7 – This box is now a checkbox, which should be checked if the payer made direct sales of $5,000 or more.
- Box 9 – This box is now used to report crop insurance proceeds amounts.
- Box 10 – This box is now used to report gross proceeds to an attorney (not fees).
- Box 12 – This box is now used to report Section 409A deferrals.
- Box 14 – This box is now used to report nonqualified deferred compensation income.
Learn more about determining who should receive a Form 1099-MISC by navigating to our article “Who receives a Form 1099-MISC?”
What should be reported as nonemployee compensation (NEC)?
According to the IRS, if the following four conditions are met, then the payment generally should be reported as NEC.
- The payment was made to someone who is not an employee.
- The payment was made for services in the course of trade or business (including government agencies and nonprofit organizations).
- The payment was made to an individual, partnership, estate, or, in some cases, a corporation.
- The payment was made to the payee of at least $600 during the year.*
*Note: Backup withholding amounts must be reported even if the amount of the payment is less than the amount for which an information return is typically required.
Learn more about Form 1099-NEC using our Mastering Form 1099-NEC: The Essential Guide.
What should be reported as miscellaneous income (MISC)?
The IRS instructs that a 1099-MISC form must be completed each person who, in the previous tax year, has been paid:
- at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
at least $600** in:
– Rents (box 1)
– Prizes and awards (box 3)
– Other income payments (box 3)
– Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3)
– Any fishing boat proceeds (box 5)
– Medical and health care payments (box 6)
– Crop insurance proceeds (box 5)
– Payments to an attorney (box 10)
– Section 409A deferrals (box 12)
– Nonqualified deferred compensation (box 14)
**Note: Backup withholding amounts must be reported even if the amount of the payment is less than the amount for which an information return is typically required.
Learn more about Form 1099-MISC using our Mastering Form 1099-MISC: The Essential Guide.
What are the requirements and deadlines for each form?
|Form||Recipient Copy Deadline||E-filing Deadline|
|1099-NEC||January 31||January 31|
|1099-MISC (No Data in Boxes 8 or 10)||January 31||March 31|
|1099-MISC (W/ Data in Boxes 8 or 10)||February 15||March 31|
Can I submit a filing electronically?
Yes, of course! E-filing is encouraged by the IRS and offers many benefits. These benefits include immediate submission, quick turnaround time, status updates, and more!
E-filing can be a requirement for some filers, though. If filing more than 250 forms of either type, then you must submit your filing electronically.
If choosing to submit your filing electronically, be sure to find an authorized IRS transmitter to make e-filing quick and easy!
Can I submit a paper filing?
Employers may choose to paper file with the IRS if their total form count is less than the 250-form per-type threshold. As previously mentioned, e-filing is encouraged by the IRS, but if you have less than 250 forms to file, then paper filing is an option.
Make sure to include a transmittal Form 1096 when choosing to paper file and only include Copy A of the Forms 1099-NEC or 1099-MISC. Copy A is the red ink copy and blank forms can be ordered from the IRS. If you have any questions about completing the transmittal form, check out our Mastering Form 1096: The Essential Guide.
Determining where to send your filing is dependent upon the filer’s address, specifically the state. Find your state in the graphic below to get the correct IRS mailing address for your filing.
Can I download these forms as a PDF?
If you are looking to download a copy of the form to distribute to your recipients, then yes, you can download a fillable version of this form from the IRS website. This copy is a PDF that can be completed and printed out to furnish to recipients.
It is important to note that this fillable copy is not sufficient for paper filing. When submitting a paper filing, the forms are scanned by a machine which requires that the form itself meet certain requirements, such as the red ink as mentioned previously. We recommend ordering forms directly from the IRS to ensure that you are submitting the correct type of form.
What are the penalties for not filing or filing late?
If you are required to file these information returns and fail to file by the due date, then you may be subject to the following penalties:
– $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $588,500 per year ($206,000 for small businesses*).IRS General Instructions for Certain Information Returns
– $110 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,766,000 per year ($588,500 for small businesses).
– $290 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,532,500 per year ($1,177,500 for small businesses).
*You are a small business if your average annual gross receipts for the 3 most recent tax years (or for the period you were in existence, if shorter) ending before the calendar year in which the information returns were due are $5 million or less.
Fines can accumulate pretty quickly! Check out our graphic below to see what this can look like for a small business with only 10 forms to send out.
There are some exceptions to the penalty, though. More information regarding exceptions can be found in the IRS General Instructions for Certain Information Returns.
Do I need to file with the state?
Along with the federal filing and furnishing requirements, many states have requirements as well.
If you’ve chosen to e-File using the IRS FIRE (Filing Information Returns Electronically) system and enrolled in the Combined Federal/State Filing Program (CFSF) any applicable forms will be forwarded to the corresponding states. It is important to always verify that your state and form type support the CFSF program to see if any additional action is required on your end.
How do I make a correction?
It is important that you take the time to review the information you are reporting on your forms for accuracy before distributing and filing, including the payment amounts and taxpayer information. This will minimize the risk of common errors which can result in your business incurring penalties and fines.
Even with careful reviewing, mistakes can happen! If your filing has errors, you can easily make corrections to your filing.
- If you submitted your original filing electronically, then you should edit your filing accordingly with the original vendor.
- If you submitted your original filing via mail, then you should complete a new form and include the updated information. Once this has been completed, simply check the ‘Corrected’ box at the top of the form! Always include a new transmittal Form 1096 when mailing in corrections to the IRS.
Before you can consider your correction complete an updated copy of the form must be provided to the recipient as well. This ensures that all parties have updated information.
If you’re looking for a broken down 1099-MISC vs 1099-NEC guide in a downloadable format, make sure to download our PDF guide.
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.