What is Form 1099-NEC?
In previous years, small business owners who paid independent contractors for services reported those payments in Box 7 of IRS Form 1099-MISC.
Form 1099-NEC is not a new form, but it was reintroduced in 2020 to simplify reporting and separate nonemployee compensation from other types of miscellaneous income.
Businesses now use Form 1099-NEC exclusively to report payments made to nonemployees for services.
What is the difference between Form 1099-NEC and Form 1099-MISC?
Some businesses will need to file both 1099-NEC and 1099-MISC forms. The key difference is that payments for services to nonemployees are now reported on Form 1099-NEC, not on Form 1099-MISC.
Form 1099-NEC is used for:
- Payments for services performed by someone who is not your employee, such as independent contractors.
- Payments for professional services, commissions, referral fees, and other forms of nonemployee compensation.
- Payments for parts or materials included with services.
Form 1099-MISC is used for:
- Royalty payments of $10 or more.
- Rent, prizes, and awards.
- Medical and health care payments.
- Payments to attorneys.
- Certain other payments of $600 or more.
- Direct sales of $5,000 or more in consumer products to a buyer for resale outside a retail store.
Who needs to file Form 1099-NEC?
If your business paid an independent contractor $600 or more during the year for services, you may be required to file Form 1099-NEC and provide a copy to the contractor.
You generally need to file Form 1099-NEC if:
- You paid someone who is not an employee for services related to your trade or business.
- Payments during the year totaled $600 or more.
- The payment was made to an individual, partnership, estate, or corporation (in limited cases).
How do I file Form 1099-NEC?
You will need the following information to prepare Form 1099-NEC:
- Your business’s legal name, address, and Employer Identification Number (EIN).
- The recipient’s name, address, and Social Security Number (SSN) or Taxpayer Identification Number (TIN).
- The total amount of nonemployee compensation paid during the year.
- Any federal or state tax withheld (if applicable).
Small businesses are encouraged to file electronically using the IRS Filing Information Returns Electronically (FIRE) system. Filing electronically helps reduce errors and ensures timely submission.
Paper copies can also be filed, but deadlines apply.
Is Form 1099-NEC part of the combined Federal and State program?
Yes. Under the IRS Combined Federal/State Filing (CF/SF) Program, certain information returns filed with the IRS are automatically shared with participating state tax agencies.
As of the most recent update in IRS Publication 1220, Form 1099-NEC is included in this program. Participation can simplify filing for businesses that must also report contractor payments to their state revenue department.
Plan Now to Meet Your Business's Tax Form Filing Deadlines
Whether your workers are employees or independent contractors, the federal filing deadline for Form W-2 and Form 1099-NEC is January 31 of the year following the tax year being reported.
Beginning the data-gathering and verification process as early as possible can help you meet your obligations to workers and to the IRS. As previously mentioned, your company may also be subject to state-specific requirements and deadlines, so consult with a Rocket Legal Pro to understand your obligations with respect to Form 1099-NEC.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
