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. Show 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. Bench: America's Largest Bookkeeping Service for Small Businesses.Get 30% off Your First 3 Months!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:
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:
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:
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:
Source: IRS 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:
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. Bench: America's Largest Bookkeeping Service for Small Businesses.Get 30% off Your First 3 Months!A version of this article was first published on Fundera, a subsidiary of NerdWallet |