Learn the difference between the 1099-MISC and 1099-NEC forms and the correct way to file them to the IRS.
Earlier this year, the IRS announced that it requires all business taxpayers to include a new, additional form to their existing filings – Form 1099-NEC.
This form is not exactly new and dates back to 1979. Of course, the form has been revised to suit the current tax scenario.
With the re-introduction of Form 1099-NEC, business taxpayers are in a dilemma to figure out how this additional form would make a difference to their overall filings.
How forms 1099-MISC and 1099-NEC are different from one another, and most importantly, what are the filing requirements for each of these forms?
About Form 1099-MISC
Form 1099-MISC is one of the widely used business tax forms, helping businesses to report all payments made to independent contractors or LLCs.
If you are a business and have made payments amounting to at least $600 or more, then it is your responsibility to file Form 1099-MISC to the IRS.
What You Must Report in Form 1099-MISC?
You must report all miscellaneous payments using Form 1099 MISC. Let’s discuss what types of payments need to be reported using the 1099 MISC form.
Royalties & Broker Payments
- Royalties amounting to at least $10 or more
- Broker payments amounting to at least $10 or more (in lieu of dividends or tax-exempt interest)
Any of the following payments amounting to at least $600 or more
- Other income payments
- Crop insurance proceeds
- Medical and healthcare payments
- Payments to an attorney
- Any fishing boat proceeds
- Cash payments made to an individual, partnership, or estate from a notional principal contract.
- Cash payments for the purchase of fish or other aquatic life from anyone engaged in the fish catching trade or business.
Direct Sales Amounting to At Least $5000 or More
Additionally, businesses are required to report any direct sales (amounting to $5000 or more) made from selling consumer products to a buyer (recipient) for resale.
You can learn more about this directly from the official website of the IRS here.
About Form 1099-NEC
Form 1099-NEC must be used to report any nonemployee compensations made to independent contractors or vendors or freelancers.
For example, say that you own a marketing agency and you hired someone as a freelancer to work for you only for a week. After you have utilized the freelancer’s services, you pay them.
Now, this is a nonemployee compensation that your business has made. And this has to be reported in Form 1099-NEC. Please note that if businesses misclassify their employees as independent contractors or freelancers, the IRS will hit you with severe penalties and possible jail time.
What You Must Report In Form 1099-NEC
You must report all non-employee payments($600 or more) using Form 1099 NEC. Let’s discuss in detail the 1099 NEC form.
Non-employee Compensations (each) Amounting to At Least $600
- Payments made to independent contractors or vendors for services utilized
- Cash payments for the purchase of fish (or other aquatic life) from someone engaged in the trade or business
- Payments made to an attorney read more in detail here.
The Difference Between Form 1099-MISC and Form 1099-NEC
With the introduction of Form 1099-NEC, the non-employee compensations are done away with on Form 1099-MISC, but the same must be reported on Form 1099-NEC.
In a nutshell, businesses will be using Form 1099-MISC to report any payments made to contractors or LLC for rent, medical or healthcare payments, and more.
While Form 1099-NEC must be used to report any payments made to independent contractors or freelancers for the services utilized.
Form 1099-MISC is a general report of all the payments made by a business.
Form 1099-NEC is a specific report of all the ‘nonemployee compensations’ made by the business.
Filing Requirements for Form 1099-MISC & Form 1099-NEC
With the introduction of the new form 1099-NEC, the IRS has eliminated the 30-day automatic extension for businesses to report miscellaneous income. Read more about it here.
As a business, it is your responsibility to accurately report all miscellaneous income and nonemployee compensations made in the forms 1099-MISC and 1099-NEC respectively.
All the payments made in course of your business for this tax year (2020-2021) and beyond have to be reported in these forms. Both the forms have to be submitted to the IRS postmarked on or by the 1st of February 2021.
Simplify Your e-Files for Tax Year 2020-2021
The re-introduction of the new Form 1099-NEC is a big surprise for businesses that hoped for a less challenging start in 2021. However, you can easily manage all your e-files in one place, thanks to Tax1099.
Tax1099 is helping small and medium businesses and large corporations to e-file business tax forms with its secure e-filing platform. And don’t worry, Tax1099 is authorized by the IRS and complies with the state and federal tax departments.
Choose from 40+ tax forms from Tax1099’s form directory and e-File with Tax1099 in just three simple steps by signing up for free.
Remember that you do not have to pay anything until you decide to submit your filings to the IRS. And when you do pay, it will cost you as little as $0.55 for each form.
Sounds fair, doesn’t it?
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