What is the 1099-NEC tax form?


Beginning in the 2020 tax year, the IRS will require business taxpayers to report non-employee compensation on the new 1099-NEC form instead of the 1099-MISC form. Businesses will need to use this form if they have made payments totaling $ 600 or more to a non-employee, such as an independent contractor.

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If you are self-employed,

  • You can expect to receive this new form from a business that paid you $ 600 or more for non-employee compensation in the 2020 tax year or later.
  • You should receive these forms by January 31 of each year (February 1, 2021 due to January 31 falling on a Sunday). and use them to prepare your tax return.

Why did the IRS reintroduce 1099-NEC?

Prior to its reintroduction, the last time Form 1099-NEC was used was in 1982. Since then, prior to tax year 2020, businesses typically completed Form 1099-MISC to report payments totaling $ 600 or more. to a non-employee for certain commercial payments. or business. These payments generally represent the remuneration of non-employees and, until now, have generally appeared in box 7 of the 1099-MISC.

In order to help clarify separate filing deadlines when reporting different types of payments on Form 1099-MISC, the IRS has decided to reintroduce Form 1099-NEC which has a single filing deadline for all payments. who use the form.

What is compensation for self-employed persons?

The IRS explains that in general, you must report payments you make if they meet the following four conditions:

  1. Payment is made to someone who is not your employee
  2. Payment is made for services in connection with your trade or business
  3. Payment is made to an individual, partnership, estate or corporation
  4. The total payment is at least $ 600 for the year

In addition, companies will need to complete the 1099-NEC form.

  • when they pay an individual at least $ 10 in royalties, or
  • whether the business withheld federal income tax under withholding rules, regardless of the amount of payments for the year to the non-employee.

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Compensation for non-employees may include:

  • Costs
  • Advantages
  • Commissions
  • Prizes and rewards for services rendered by a non-employee
  • Other forms of remuneration for services rendered for your trade or business by a person who is not your employee

What details should I know about updating Form 1099-NEC?

Self-employed workers should not see the personal payments made to them during the year on the new form. Instead, your form should only report payments made as compensation related to trade or company affairs.

  • The remuneration of non-employees shown in box 1 of Form 1099-NEC is generally reported as self-employment income and likely subject to self-employment tax.
  • Payments to individuals that are not reportable on Form 1099-NEC would generally be reported on Form 1099-MISC.

The IRS provides a more comprehensive list of the types of payments that would be reported in Box 1.

Here are some examples :

  • Commissions paid to non-salaried salespeople subject to reimbursement but not reimbursed during the year
  • Professional service fees, such as fees for lawyers (including companies), accountants, architects, contractors, etc.
  • Fees paid by one professional to another, such as fee sharing or referral fees
  • Payments by lawyers to witnesses or legal experts
  • Payment for services, including payments for parts or materials used to perform the services

Who Should Complete Form 1099-NEC?

Any business that pays non-employee benefits totaling $ 600 or more to at least one beneficiary, or withholds federal income tax from a non-employee payment, will now use this revamped form. to report these payments and deductions.

Typically, payors must file these forms by January 31 and do not have an automatic 30-day extension to file, unless the business meets certain hardship conditions.

What about Form 1099-MISC?

Since the IRS has removed the non-employee compensation statement from Form 1099-MISC for tax years 2020 and beyond, the IRS has also redesigned this form.

  • The most significant adjustment is in Box 7, which previously reported compensation for non-employees, but now reports direct sales of $ 5,000 or more.
  • The other information reported on the form will now appear in renumbered boxes.

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