Here’s a simple guide to understanding the difference between Form 1099-MISC and 1099-NEC.
If you’ve been following the tax updates from the IRS, you must know that a LOT has happened in the past couple of tax years. An old friend of 1099 returns, Form 1099-NEC was restored and Form 1099-MISC was re-designed as a result. And this change was only the tip of the iceberg. What pursued this change was a shift in reporting requirements for 1099-NEC and 1099-MISC forms.
And if you’re a licensed CPA or perhaps a small business owner or just someone who is incredibly invested in learning about taxes, you must be aware of these changes.
You’ll also come across some useful links and resources in this discussion.
If you plan on using handy guides while reading your 1099 returns, the resources you’ll come across here will be of help.
The following will detail information on 1099-MISC and 1099-NEC forms, their uses, information to file the returns, due dates, penalties, and other insights.
So, let’s get started.
What Is Form 1099-NEC?
Form 1099-NEC is an IRS information return used to report non-employee compensations. The IRS requires taxpayers to file a Form 1099-NEC for each independent contractor to whom they’ve paid at least $600 or more as payments in exchange for services.
For example, if you’ve recently connected with a logo designer on a freelancer platform such as Fiverr, then any compensation you may pay to the said designer is considered ‘payment made to independent contractor’, or simply, nonemployee compensations.
All such nonemployee compensations that occur in the course of the business in a tax year must be reported on Form 1099-NEC along with the payee’s TIN and legal name.
Why Is Form 1099-NEC Returning?
The malpractices surrounding employee misclassifications, a huge gap in the filing due dates for Form W-2 and Form 1099-MISC, and the provisions of the PATH Act have led the IRS to restore Form 1099-NEC for a smoother tax reporting experience for taxpayers.
The rise of the gig economy fueled this move even more.
It is also worthy to note that Form 1099-NEC, since its restoration, has helped many businesses improve the reporting accuracy and reduced the conflicts in reporting per the voluntary compliance program.
Another interesting thing since the restoration of 1099-NEC is that Form 1099-MISC has been re-designed and re-sized since Form 1099-NEC basically replaces Box 7 of the older Form 1099-MISC form. Form 1099-MISC is now only used for miscellaneous information reporting as opposed to miscellaneous income reporting. So much so that Form 1099-MISC has been renamed to ‘Miscellaneous Information’.
Form 1099 NEC vs. 1099-MISC — What’s The Difference?
|Form 1099-NEC is used to report non-employee compensations
|Form 1099-MISC is used to report miscellaneous information
|Payments made to freelancers, independent contractors, vendors, and other gig workers in exchange for their services, are reported on Form 1099-NEC
|Miscellaneous income payments, such as rent, royalties, crop insurance proceeds, and more are reported on Form 1099-MISC
|Specifically deals with non-employee compensations
|Deals with miscellaneous forms of income payments that do not apply to other tax forms
Where To File 1099-NEC?
Form 1099-NEC can be filed online with electronic filing or eFile methods. Alternatively, it can be filed by paper, also known as paper filing.
If you’re choosing paper filing, use this comprehensive state-wise guide per the CF/SF guidelines
However, the IRS has recently reduced the total 1099 paper file threshold to just 100 forms collectively.
This means if you’re to file more than 100 1099 forms (all form types put together), then you must go with the eFile process.
Considering the safety measures in light of the Covid-19 outbreak, electronic filing will help you safely eFile the 1099 returns without any hassles.
And the best part is that the eFile method doesn’t have any thresholds. You can file all the required 1099 forms conveniently and securely.
Where To File 1099-MISC?
Similar to the case of 1099-NEC, Form 1099-MISC can also be filed electronically and by paper.
If you’re choosing paper filing, use this 1099-MISC reporting guide for the 2021-22 tax year.
We recommend filing your 1099-MISC forms and all other 1099 returns electronically with the eFile process. More specifically with Tax1099 due to the security of the platform, reliability of the tax support team, and the convenient experience.
How To File Form 1099-NEC?
With Tax1099, you can easily file your 1099-NEC forms online.
Follow our 3-step eFile process and you will be able to prepare and eFile your 1099-NEC forms within minutes!
Create your free Tax1099 account to get started. No credit cards are required.
Step 1: Import your tax-sensitized data
Take advantage of any of the available integrations from Tax1099’s widget and import the required data successfully. Allow Tax1099 to populate this data across the 1099 returns automatically. You can choose to enter this data manually.
Step 2: Validate your data
1099-NEC requires taxpayers to enter the payee information, such as the legal name and taxpayer identification number of the payee. You can validate these details with our super-fast real-time TIN match program.
Note: TIN matching prior to filing will improve your reporting accuracy and help prevent IRS TIN discrepancy penalties. Learn more about TIN Discrepancy penalties
Step 3: eFileOnce your data has been validated, you can securely transmit your prepared 1099-NEC forms to the IRS directly. Choose a payment method, make the payment, and eFile your returns successfully. Takes less than a minute*
Do Businesses Have To File Both 1099-MISC And 1099-NEC?
Here’s a simple way to conclude if you need to file either of the 1099 forms or both.
File Form 1099-NEC If: You have paid an independent contractor $600 or more in a tax in the course of business.
File Form 1099-MISC If: You have paid at least $10 in royalties. AND/OR
You have paid at least $600 or more in:
- Prizes and awards.
- Medical and health care payments.
- Crop insurance proceeds.
- And other payments
What Are The Filing Deadlines For Form 1099-NEC And 1099-MISC?
Use the following table to prepare and file Form 1099-MISC and Form 1099-NEC before the deadlines
|Minimum Reportable Amount
|IRS eFile Due Date
|IRS Paper File Due Date
|Current Version (2022)
|$600 in nonemployee compensations
|$10 for royalties. $600 for most forms of miscellaneous payments
What Are The Penalties For Missing The Filing Deadline?
If you fail to file Form 1099-NEC or Form 1099-MISC by the prescribed due dates, the IRS may assess a minimum of $50 to $270 penalties. These penalties will continue to accrue interest until the forms are submitted.
If the IRS notices that the delay is intentional, then the willful disregard penalties and failure to file penalties will also apply to the use case.
There is no maximum limit on the penalty assessed by the IRS. This is why taxpayers are advised to maintain tax discipline around the year to reduce the last-minute stress of filing the returns past the due dates or omitting to file.
|IRS Penalty For Delayed Filing
|$50 to $270 for each form
|$50 to $270 for each form
Here’s How Tax1099 Can Help You
Our penalty prevention program has been designed to help you validate and verify your reports prior to filing.
This will help you report more accurately, prevent the risk of being issued B-notices and successive penalties, helping you stay compliant.
Use this guide to further gain insights into the legal and practical considerations to stay compliant.
Keep coming back to our compliance updates space to learn about the latest news and happenings in the tax world
Most importantly, utilize Tax1099’s TIN Matching program to check 100,000+ checks within a minute and get results in 30 seconds or less.